We Answer A Question Regarding Deducting Used Equipment!
One of our readers asked the following question:
“If I purchase a (used) tractor by the end of this year what percentage will I be able to write off? “
This is one those questions where the answer is: IT DEPENDS.
When purchasing a used tractor, the farmer must first decide if they want to take the Section 179 deduction on the tractor. This deduction for 2010 can be as high as $500,000 and it applies to both used and new equipment. There are two limitations on the deduction:
- The farmer must have taxable income from farm operations and other businesses at least equal to their planned Section 179 deduction (including most wages that they earn), and
- They must not purchase more than $2 million in equipment for 2010. Purchases above this amount start to reduce the Section 179 deduction dollar for dollar.
In the case of this farmer, as long as the farm is profitable and net income from farming and after other depreciation is more than the cost of the tractor, then the farmer will be able to completely deduct the cost of the tractor in 2010. Any amount not deducted under Section 179 will be depreciated over 7 years.
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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