Agribusiness BlogFarm CPA Today

100% Bonus Depreciation – No Income Limitation!

We had a reader send in the following question:

“I read a post from you a week ago or so about 100% bonus depreciation on farm buildings. Looking at putting up a machinery shop will I be able to deduct all of the cost my 2011 taxes if I put the building up this year and have the income to cover it.”

Farmers sometimes get Section 179 and bonus depreciation rules mixed up.  Section 179 has an overall income limitation that applies to the actual deduction that might be allowed.  For example, if the farm generates $200,000 of net income before the allowable Section 179 deduction (including depreciation on all other assets), then the total amount of allowed Section 179 deduction for the year is $200,000.  This is true if the asset placed in service costs $500,000.  Remember that farm buildings are not available for the Section 179 deduction.

Now, in the case of bonus deprecation, as long as the building is a NEW building, the income limitation do not apply.  Let’s take the case of the farm building costing $500,000 with net farm income after all other costs of $200,000.   In this case, the farmer is allowed to take a full bonus depreciation deduction of $500,000 and show a $300,000 farm loss.  If the farmer has no other income, they can carry the loss back two years to offset income in 2008 and 2009 and forward to 2011 and beyond until they use it up.

Remember on all new equipment, farm structures and farm buildings placed in service in 2011, the farmer can deduct 100% of the cost without worrying about the overall income of the farm operation.  Also, make sure to review this with your tax advisor to determine if your structure is set up properly to allow the full deduction.  If you are an S corporation and this bonus depreciation creates a loss greater than your available basis, you will not be allowed to deduct the full amount of bonus depreciation this year.

, Farm Industry Trends, Farm Leadership, Farm Operations, Farm Taxes | 153 Comments »

  • Principal
  • CliftonLarsonAllen
  • Walla Walla, 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 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.

Comments

  • DBoone
  • April 4, 2012

I have a 40 acre farm. All but 15 acres are in the forest reserve program. Until 2011, the 15 acres were farmed. In 2011 I put the 15 acres in CRP. May I still deduct depreciation on the buildings and equipment?

  • Shane
  • March 29, 2012

If I constructed a shed on my property that I leased to my farm corporation would it qualify for the 100% bonus depreciation provision in 2011? Would this be 20 year property or would it be 39 year property (nonresidential real estate)ineligible for bonus depreciation?

  • Read
  • March 26, 2012

Where do I list the cost of buying a tractor on my Schedule F?

  • Mark
  • March 25, 2012

Paul,
Just stumbled upon this great blog.

We purchased a property last year which includes 450 avocado trees. We have leased it out to the same ag company as previous owners. Lease basis is 50% split of net profit, ag company carries all ongoing expenses.

My question pertains to depreciation. Part of our purchase price was used to settle $18K outstanding debt of $30K capital improvement for new trees, irrigation and fencing. Is there anything we can depreciate?

My CPA asked for value of farm part of property. I didn’t see his point as land can’t be depreciated. Is it possible to depreciate value of all improvements i.e. trees, fencing and irrigation?

Many thanks,
Mark

  • Tammy
  • March 18, 2012

This year I bought a bucket calf and cow to add to my breeding stock. Unsure if both can take the special depreciation. Saw you said they qualify as long as they have not been bred before. Do you mean ever or since I have purchased? Thanks for the clarification!

  • Debbie BAck
  • March 10, 2012

Paul, we have been running a ranch in Texas for about 16 years. We recently purchased 26 acres adjacent to our 380 acre ranch. We paid $13,000 down and financed the rest with equity on our current ranch through our same lender. This is ag exempt and being used as pasture and for hay production. Can we deduct the down payment? I believe we can deduct the closing costs and points, but I am wondering how to deduct the down payment. The land is totally for ranch livestock and not for personal use.

  • Paul Neiffer
  • March 12, 2012

Land is not a deductible expense, however, if the purchase included fencing, roads and wells, you can set these up on your depreciation schedule and depreciate them over their useful life or take Section 179 on the value of these assets. The closing costs are added into the total cost of the property and are not separately deductible (other than pro-rata real estate taxes, etc.).

  • Tiffany
  • March 5, 2012

My husband is in a Poultry Farm partnership with his father & brother. We have a mobile home on the farm property that is in my husband’s name. Can the farm legally rent/lease home from him for an employee?? If so, do they claim mortgage interest & depreciation or does he??

  • Paul Neiffer
  • March 6, 2012

He can rent the home to the partnership. He would report the income and then deduct the interest, depreciation, taxes, etc. against that income. Make sure that the rent charged is appropriate.

  • Brian Sisson
  • February 25, 2012

I am a new farmer that is Filing my first Schedule F this year. I put up a new machine shed that is being used to store Seed from my seed business and cold storage for Machinery. I know I can write off the building because It was build and complete in 2011. Can I put my seed business on a schedule F or do I have to file a Schedule C?

  • Paul Neiffer
  • February 28, 2012

Normally, you would report your seed business on a schedule C since that business in not in the business of farming, but rather selling seed.

  • Sheryl
  • February 23, 2012

My husband has actively farmed for over 30 years and files a Schedule F each year. He would like to construct a new machine shed on our property with used material that he acquired when a building in another county was torn down. Would this qualify as a new bulding and available for the 50 percent bonus depreciation in 2012, even if it is constructed using used material?

  • Leanna
  • February 21, 2012

I bought a herd of sheep including 40 ewes ready for breeding 10/2011. Can I take the special depreciation on them?

  • Paul Neiffer
  • February 22, 2012

For the breeding stock, you can if they were never bred before.

  • Leanna
  • February 21, 2012

Do animals bought and placed in service for the 1st time in 2011 also count as a special depreciation deduction.

  • Paul Neiffer
  • February 22, 2012

Yes, they do.

  • Fred Koster
  • February 18, 2012

1. If a new roof was put on an existing older farm building in 2011, does it qualify for the bonus depreciation?

2. Also, if a new farm building was constructed by a construction company on our farm, can we just use bonus depreciation on some of the components as we don’t need the entire cost write-off?

Thanks alot.

  • Jamie
  • February 15, 2012

I live in MI and I have a livestock farm, run a crop insurance business, and also work for a seed company. The livestock business generally doesn’t show a big income, but I do have a farm in Il that show a big income. My question is can I build a building to house livestock in MI, and still get the 50%? I file a schedule F in IL & MI.

  • Paul Neiffer
  • February 16, 2012

Yes, there is no federal income limitation. I am not sure about the 50% Michigan deduction. Most states follow the federal rules, but you would need to check to make sure MI does.

  • E. Sand
  • February 13, 2012

Hello,
I purchased a 10 acre tract of land (in 2011) that I farm with hay for my horses. This tract of land is the only land that I own; I rent the home that I live in along with stables for my horses. I normally file a very simple 1040. Other than the mortgage interest & property taxes associated with the land, do I need to file any type of ag tax forms? Should I file any additional forms? Thanks in advance for your help.

  • Paul Neiffer
  • February 16, 2012

Based on the size and the facts, you should be good without having to file anything more.

  • Johnny B.
  • February 12, 2012

Mr. Neiffer,
Thank you for the previous answer.
My income is for CRP1 payments and I file a Sch. F for this income. Would this be considered rental income? Would the irrigation motor also be eligible for the 100% bonus depreciation as well as the building to house it?
Thanks again for your answer.
Johnny B

  • Paul Neiffer
  • February 12, 2012

As long all of the assets are new, they will qualify.

  • Blane M
  • February 9, 2012

Hello,

I put a building up late 2011. The last invoice for materials I used wasnt paid until January 2012. I that a problem if I want to take advantage of the 100% depreciation?
Thanks

  • Johnny B
  • February 6, 2012

Mr. Neiffer,
I was reading your thread about 100% bonus depreciation and hoped you might answer
a question I did not see asked.

My brother and I put in a new irrigation motor and built a building to house it in 2011.
Everything was brand new. My income for that land is CRP alone.

I would like to take my expenses or depreciation or both to offset the crp income.
Would I use straight line,(how many years) for the motor and shed, or 100% depreciation,
and expenses for either?

Thanks for the help.

  • Paul Neiffer
  • February 6, 2012

Since it was all new, you should be able to take full 100% bonus depreciation on the improvements, however, if your farm income is treated as a rental on your tax return, you may have some passive income limitations on how much you can deduct.

  • Mike Z
  • February 4, 2012

I built a farm building that qualifies for 100% bonus depreciation but it will give me a much larger Sch F loss in 2011 than I would like. Can I choose to not use the full 100% depreciation and instead use about 60 or 70% and depreciate the remainder in future years? How would I do this?

  • Paul Neiffer
  • February 5, 2012

The election out of bonus depreciation is an all or none option. You can elect to depreciate it over 20 years instead of taking full bonus depreciation. One way you may be able to get what you want is to review the barn improvements and see if any of those qualify as either 7 year or 15 property and you could elect to depreciate those over that time period.

  • deon
  • January 27, 2012

hi, we live in tennessee moved here 1 and 1/2 years ago. on 4 acres, in 2011 we had a metal building put up mutipurpose for tractor, tools, feed storage etc.. we have begun to raise chickens not for money but as a hobby can we deduct the cost of the metal barn. thanks

  • lynn
  • January 27, 2012

I am having trouble figuring arkansas depreciation when I use either 179 or special depr. Does the state have different guidelines and if so, how do I find them? Schedule f – beef farm – depreciating cows bought for breeding.

  • Paul Neiffer
  • January 28, 2012

Each state usually has instructions on how to deal with the differences in depreciation for bonus and Section 179. You can get these off of there website.

  • Rich R
  • January 15, 2012

I own 160 and in the past I rented the tillable acreage. This year I placed most of the acres in CCRP for 15yrs. My contract requires that I manage weeds, gophers, and care for trees planted in contract. I built a pole barn in 2011 to house the equipment (tractor, brush hog, etc) necessary to house the new equipment that I needed to buy to maintain the property. Does the pole barn qualify for the special bonus depreciation? Thanks in advance for your help.

  • Dean
  • January 5, 2012

How do I properly take the bonus depreciation on my machine storage shed built in 2011? Do I just enter the amount on Line 14 of the 4562? Do I need to show anything in Part 3 Sec B Line F?

  • Paul Neiffer
  • January 9, 2012

All of your new farm buildings would go in line 14. If there is a used farm building that would go in Part 3, Sec B, Line F, but only used assuming you are taking the 100% bonus on the new farm building.

  • Sue McCoy
  • January 2, 2012

We are in Oregon.
Thank you for your assistance and advise.

  • Sue McCoy
  • January 1, 2012

I am starting up a miniature horse breeding farm. We built the small barn to start and have purchased two mares ( age 8 and 15) and three wean-ling colts. It is my understanding that the mares qualify as they are of breeding age. How do we figure the colts as breeding age is 3 per American Miniature Horse Assoc.
Also the barn was built and finished in 2011 and is a single use ag. building as it will only work for mini horses, feeding, foaling and stalling. How does the barn apply?
Should we wait till 2012 as both mares are open and won’t be bred till spring 2012?

  • Dustin
  • December 29, 2011

Hi Paul, We started a livestock operation in 2011 and built new facilities (IE: Barns) in 2011, but don’t show any income in 2011. Since the barns are new to us in 2011 and this is our first year in this business, can we still use the 100% bonus depreciation?

  • Paul Neiffer
  • December 29, 2011

Since you are in the business of farming, you will qualify for bonus depreciation on your new farm buildings. I must caution that the IRS may review your return more closely, but you are entitled to the deduction.

Good luck with your ranch.

Subscribe to Blog   

Get in-depth and timely insight on taxation, accounting, succession planning, and other issues specific to farmers and agribusiness processors. Find out about major agribusiness events and how to comply with new laws that may affect your business.