Watch Your Date of New Construction

The tax law passes late last year had a very favorable tax treatment for the construction of new farm buildings.  In that law for any new farm buildings placed in service after September 8, 2010 and before January 1, 2012, a farmer would be able to write off 100% of this new construction cost in the year placed in service.

For example, if a farmer started to build a new machine shop in late 2010 and placed it in service in May, 2011, they could deduct 100% of this cost on the 2011 tax return.  Most tax advisors were under the assumption that this 100% bonus depreciation would apply on any new building placed in service between these dates.

However, the IRS has thrown us a curve ball in that their intrepatation is that both the contruction must commence and be placed in service during these time periods.  Therefore, if in the above case, the farmer started the construction before September 9, 2010, then they can only deduct 50% of the new building as bonus depreciation.  The beginning of construction is defined “as when physical work of a significant nature begins”.

If this applies to your operation and you deducted 100% of the new building on your 2010 tax return, you will need to review with your tax advisor to see if an amended tax return is required.