Year-end Equipment Flexibility

We had a reader ask the following question:

“If I purchase and take delivery of a tractor in December 2011 but do not want any of the depreciation until 2012 can I still get the section 179 and bonus depreciation in 2012?”

In order to depreciate equipment such as this tractor in 2011, the farmer must both purchase the tractor (either for cash or financing it) and place the tractor in service.  Generally at year-end, the tractor needs to be delivered to the farm and available for use on the farm.  The farmer does not have to actually use the tractor in the field before year-end, but it must be available for that use.

If the farmer meets both of these tests, then the tractor is depreciated in 2011 either using bonus depreciation, if new, or using Section 179 and regular depreciation on the remainder, if used.

Now, if this farmer does not want to depreciate it in 2011, then he can purchase the tractor, but not place it in service.  He may simply have the tractor delivered to the farm after year-end and this would make it eligible for bonus depreciation and Section 179 in 2012.

However, the farmer needs to understand that bonus depreciation in 2012 is only 50% not 100%, and Section 179 is only available on $139,000 of assets, not the $500,000 available in 2012.  Now, these numbers may change and go back to the 2011 amounts, but this is not law yet.

  • 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 partner 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 combine each summer for his cousins and that is what he considers a vacation. Leave a comment for Paul. If you would like to leave a comment for Paul, follow the link above, however, please make sure to include your email address so that he can reply to your comment (your email address will not automatically show up).

Comments

Many thanks!

You will start depreciating in 2012 using a seven year life and it will be based on the fair market value of the equipment in 2012 most likely. You use the lower of original cost or fair market value. In this case, I am assuming FMW will be lower.

Hello. We have finally started a small farm for profit this past year, thus 2012 will be our first Schedule F. We purchased our tractor in 2007. We’ve been using it for years for personal use in the woods and on the homestead farm. Now that we are producing products for sale, I’m trying to figure out my basis and the year placed in service. Do I use the original purchase price and that date (and miss out on the first five years of a ten year life) or do I determine the value when placed in service for the farm in 2012 and start depreciating then for the next ten years? Any help you can offer is really appreciated. I have this same question for other equipment, such as implements, too. Thanks so much.

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