50% Bonus Depreciation Applies to More Property
50% bonus depreciation has been extended to 2020 (40% in 2018 and 30% in 2019). Under the old rules, only property with a life of 20 years or less was eligible for bonus depreciation. Since all farm property has a 20 year or less life, then any new farm property was eligible for bonus depreciation. The extender legislation passed earlier this month has expanded the assets that now qualify for bonus depreciation.
Any interior improvement made to non-residential real estate will qualify for bonus depreciation with certain exceptions for (1) elevators and escalators, (2) internal structural framework, and (3) enlarging a building. These changes will help farmers who have expanded their operations beyond farming. For example, they may have a chemical and fertilizer distribution business. This business is housed in a building off the farm that is being depreciated over 39 years. Since the business is expanding, the farmer has elected to make internal improvements to the building. Under the old law, these improvements likely were depreciated over 39 years. Under the new law, the improvement is still depreciated over 39 years (in most cases), however, it is now eligible for a 50% bonus depreciation in the year it is placed in service.
As an example, assume the farmer buys a building in 2014 for $450,000. This building is being depreciated over 39 years. In 2016, he spends $150,000 on internal improvements to the building that are placed in service on July 1, 2016. He can deduct $75,000 as bonus depreciation and take an additional depreciation deduction of about $900. Under the old law, he could only deduct about $1,800.
Improvements made in 2015 are under the old law. This new change applies to any improvements made after December 31, 2015.
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.
Question: If The taxpayer incurred a total of $66000 of farming capital assets that have a 7 year depreciable life. assets qualify for the 50% bonus depreciation. also if the taxpayer only has $9,000 of farm income “before” considering ANY depreciation related to the assets, please confirm if the 50% special depreciation should be claimed.