Will Farmers Have More “Repairs” This Year?
Until about two years ago, farmers could have been in a battle with the IRS concerning whether a repair was really a repair or an asset that needed to be depreciated. Beginning in late 2010 and through 2011, 100% bonus depreciation applied for any new purchase including what might have been classified as a repair by the farmer and an asset by the IRS. This led to most farmers not caring if a repair was a repair or not since in either case it was fully deductible.
Now, for 2012, we only have 50% bonus depreciation and Section 179 is limited to $139,000, so I would expect there to be a lot more repairs by farmers. Some of the repair rules have been loosened up and if you think you might need more “repairs” this year, make sure to review this with your tax advisor to make sure the repair is really a repair, otherwise the IRS may surprise you later on and classify it as an asset depreciable over 7 years or more. That can be costly.
This is also another area where proper documentation can be helpful. By documenting what was repaired and why, etc. you are more likely to withstand an IRS audit than having the wrong or no documentation.
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.
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