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.
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.
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