Watch Your Section 179 Deduction From Multiple Entities!

With the increased Section 179 deduction available in 2011 of $500,000 farmers need to be very careful if they have ownership in multiple partnerships and S corporations that will be purchasing large amounts of used equipment and deducting it under Section 179.  The partnership and S corporation have an overall $500,000 Section 179 limitation on deducting at their entity level and when this amount flows through to the farmer, there is another $500,000 limitation level on his tax return. 

If more than $500,000 of Section 179 expense flows through to the farmer, then this excess amount is permanently lost as a deduction.  In this case, the farmer should have one or more of the entities look at amending their tax return to take a lower amount of Section 179 or if it new equipment, the 100% bonus depreciation rules would apply and it would result in the same deduction to the entity.

Another trap to watch out for is if the farmer has multiple C corporations that he controls, the Section 179 rules require the $500,000 limitation to be allocated among all of the C corporations that he controls.  This will result in only $500,000 being able to be deducted among all the C corporations.

If you think these limitations may apply to you, make sure to review it with your tax advisor.  The worst thing that can happen from a tax standpoint is to permanently lose a tax deduction that can be prevented.

  • Principal
  • CliftonLarsonAllen
  • Yakima, Washington
  • 509-823-2920

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 Yakima, 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. In fact, Paul drives a combine each summer for his cousins and that is what he considers a vacation.

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