Build It In America Act – Will Bonus Depreciation Be Extended?
The House Ways & Means Committee has passed and submitted HR 3938 for consideration by the full House. There are several taxpayer favorable provisions in this bill…several we’ve been waiting a long while to see.
The item of greatest interest to producers is the proposed extension of the provisions of bonus depreciation. Prior to January 1, 2023, taxpayers could expense 100% of farm equipment, farm buildings and tiling additions in the year of purchase. This changed on January 1 to an 80% deduction, with the remaining 20% depreciated over the asset’s useful life. The deduction is scheduled to continue to reduce by 20% per year until it expires at the end of the 2026 tax year.
If bonus depreciation was allowed to expire, many farmers could achieve the same result using Section 179. However, it’s $1.16 million limit doesn’t get you too far when an X9 combine costs nearly $1 million (depending on the model). It also doesn’t work on farm buildings, including machine sheds, which are much easier to pay for when the tax benefit comes in the first year instead of the next twenty years. The loss of bonus depreciation, which has been around in some form since the 2001 tax year, would be detrimental to the ag community from an income tax perspective.
The proposed legislation extends the 100% allowance for assets place in service prior to January 1, 2026. For assets placed in service during the 2026 calendar year, the 20% bonus depreciation limit from the existing expiration schedule applies and bonus depreciation is phased out completely for 2027.
There are couple of other items in this bill that will impact the industry:
- Temporary suspenstion of Section 174
- Temporary extension of rules related to Section 163j interest expense limitation
We’ll address these in later posts and continue to keep an eye on the progress of this bill.
Kelly Jackson Hardy is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers, privately-held elevators and supply dealers, and cooperatives. Kelly is a principal with CliftonLarsonAllen in Princeton, Illinois, as well as a regular speaker at tax and estate planning seminars. Kelly was raised on a hog, row crop and cattle farm in central Illinois and has been involved in the ag industry her entire life. Kelly, her husband, and two sons are active in 4-H and operate a small feeder calf operation and pumpkin business.
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