Is Low Section 179 Causing Low Equipment Sales?

Most of the equipment manufacturers have released their equipment sales for the last quarter and most of them reported lower sales for the first quarter of this year versus 2013.  We have seen some commentators attribute this to the current lower Section 179 tax deductions for this year and no bonus depreciation.

However, when you review the numbers for these companies, it appears that the major component of the drop in ag equipment sales relates to foreign sales where Section 179 and bonus depreciation would be irrelevant.  We believe that lower crop prices are probably more determinative of equipment sales than income tax policy.  However, tax policy will play into the timing of the decision, but overall profitability of the farmer is far more important.

We know that livestock producers are enjoying a very profitable year, however, they do not normally purchase as much equipment as row crop producers unless they are growing their own feed.  Farm equipment sales were very robust in 2012 when Section 179 was scheduled to be much lower.  It will be interesting to see if sales pick up later in the year if Section 179 is raised to $500,000 and 50% bonus depreciation are both reinstated retroactive to January 1, 2014.

We shall see.

Paul Neiffer, CPA