Looks Like $500,000 Section 179 is Now Permanent
Although not passed yet, “The Protecting Americans from Tax Hikes Act of 2015” will likely be passed by Congress in the next day or two and then signed by President Obama. One of the key provisions for farmers is to make Section 179 permanent at the $500,000 level. Once equipment purchases total $2 million, then the allowed Section 179 amount will start to phase-out dollar-for-dollar and no more will be allowed after $2.5 million.
Additionally, the amount will be indexed to inflation in $10,000 increments. Starting with tax years beginning in 2016, air conditioning and furnace units will also qualify for Section 179.
Regular farm corporations who have made an election to be taxed as an S corporation now only have to wait five years instead of 10 years before selling any appreciated assets that would be subject to the built-in gains tax. For example, under the old law, a farm corporation with land with a basis of $1 million and fair market value of $5 million would have owed additional corporate tax if the land was sold before ten years in the amount of $1.4 million (this amount could be less under certain conditions). For tax years beginning in 2015, this 10 year period has been permanently reduced to 5 years.
50% bonus depreciation is extended until 2019, however, the amount allowed in 2018 is 40% and 30% in 2019. Also, if certain plants bearing fruit or nuts are planted before 2020, the farmer may take bonus depreciation on the costs of these plants. The remaining plant cost is then capitalized as part of pre-productive costs and then depreciated over 10 years when the plants reach commercial production.
There are many other provisions related to all taxpayers such as a permanent enhanced child tax credit, earned income credit, deduction for sales tax and many other provisions too numerous to list here. The ones listed above are the ones I believe to be most important for farmers. If we find others, we will let you know.
IMPORTANT: THIS BILL HAS NOT YET BEEN PLACED INTO LAW SO IT MAY CHANGE. WE BELIEVE IT WILL NOT, SO WE ARE LISTING THE PERTINENT PROVISIONS HERE.
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.
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