Deduct Your Tiling This Year

We got the following question from one of our readers:

“IF A TENANT TILES OUT LEASED FARMLAND CAN THE TENANT DEDUCT THE COST OF THE DRAINAGE TILE AND LABOR DURING THAT TAX YEAR ON SCHEDULE F?”

2011 provides a great opportunity for either an operating farmer or landlord to put in new tile and deduct 100% of the cost under the bonus depreciation rules.  Tiling is usually allowed as a deduction for Section 179 expense, however, sometimes there are income limitations and other restrictions to using Section 179.  The nice thing about bonus depreciation for new tile is that there are no income limitations and 100% of the cost is allowed as a deduction.

However, if a landlord’s farm rental is considered a passive activity and they incur too much cost for the year compared to their passive income, they will only be able to deduct the tiling to the extent of their income.  The excess is allowed to be carried forward to 2012 and most likely deducted then.