Are We Getting Section 179 Fatigue?
We should know by Wednesday whether Section 179 will be $500,000 for 2014 (I have guaranteed this at several seminars over the last week or so, but you know how much my guarantee is worth).
Assuming it does get increased to that amount for this year, I am starting to wonder if many of our farmers are starting to get what I call “Section 179 Fatigue”. After purchasing a lot of equipment over the last 4 years to take advantage of Section 179, I am not sure how much capital is still available to purchase even more equipment to get the Section 179 deduction. This is especially true with much lower prices this year (although I would like to remind farmers that these prices would have been considered very high less than 10 years ago).
Section 179 may not have much benefit if farmers are trying to trade-in equipment that has been fully depreciated using Section 179. This is due to the basis of the equipment being written down to zero and only the boot paid at the time of trade-in qualifying for Section 179 or bonus depreciation.
Another area of concern is if farmers have been maximizing the amount of term equipment debt to purchase the equipment. This usually results in the farm needing to create additional taxable income to pay the principal payments which then creates extra taxes owed which needs additional capital to pay the taxes. This can be what I call a double or triple whammy.
Section 179 is not a permanent tax saving, it is simply accelerating a deduction to year one that you would be entitled to in years 2-8 (for most equipment). Therefore, once Section 179 fatigue sets in, income taxes increase for farmers. Are you in this situation?
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.
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