The Coming Fiscal “Section 179” Cliff
We had a reader ask the following question:
“179 depreciation is scheduled for $25,000 in 2013 do you think this will be changed? If not how would it work on a pivot worth $71,000. ? $25,000 first year and remainder $46m over 6 years ?”
I am sure that the major equipment manufacturers such as Deere, Case IH are actively asking this same question. These manufacturers (and farmers) have enjoyed the benefits of 100%/50% bonus depreciation and Section 179 of up to $500,000. This year, bonus depreciation is 50% and Section 179 is limited to $139,000.
As the reader says, next year Section 179 drops all the way back to $25,000 and there is no bonus depreciation. For the answer to his calculation question, he would take Section 179 of $25,000 leaving $46,000 to be depreciated over seven years as follows:
- Year 1 – 9.38%
- Year 2 – 19.13%
- Year 3 – 15.03%
- Year 4-7 12.25% each year
- Year 8 6.13%
These percentages may change a little bit if the mid-quarter convention applies.
Therefore, his total depreciation deduction for 2013 would be $25,000 plus $4,315 for a total of $29,315.
As to his question on whether this will be changed, we may know this by the end of the year or we may not. With the major push for revenue raisers, it may be tough to get much of an increase, however, when they score this over a ten year budget window, the net effect on the budget is fairly minor due to deduction simply being a timing of the deduction, not an extra deduction.
If Section 179 and bonus depreciation remains as is, the effect on farmers and farm equipment manufacturers will most likely be dramatic since many farmers will now have a year of little depreciation (all soaked up with bonus and Section 179) and buying equipment at year-end may yield a very minor depreciation deduction. This may result in their equipment loan payments coming out of cash flow with no or little tax deduction. This can be the worst case scenario.
We shall keep you posted.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
I meant to say “lower the impact of the 179 maximum.”