Senate to Vote on Tax Extenders on Wednesday?
It appears that the Senate will vote on the Tax Extenders Bill on Wednesday of this week. Procedural matters will tie them up on Monday and Tuesday, thus the earliest the vote will take place is on Wednesday. It is expected that enough Democrats will vote with Republicans to pass the Bill and it appears that President Obama will sign it.
As discussed many times, this will put Section 179 back to the $500,000 level and for many farmers, more importantly 50% bonus depreciation will be back in play for assets placed in service by December 31, 2014.
Remember that trade-in of farm equipment qualifies completely for bonus depreciation (if new equipment is purchased), but only boot qualifies for Section 179. Here is an example:
Farmer John trades in an older John Deere 9770 for a new John Deere S680. The trade-in value of the 9770 is $200,000 and the amount of boot given to purchase the new combine is $250,000. The tax basis of the old 9770 is $100,000. First, we have to determine how much Section 179 we can take. The old basis of $100,000 does not qualify, so John can take $250,000 of Section 179. Then, he can take 50% bonus depreciation on the $100,000 boot or $50,000 plus depreciate the remaining $50,000 over 7 years for another $5,000 of so of depreciation. Thus, Farmer John can take total 2014 depreciation on the new S680 of $305,000.
If the Tax Extender bill does not pass, then Farmer John can only depreciate the S680 over 7 years and the first year deduction is about $37,500. Even though Section 179 is $25,000, since Farmer John spent more than $225,000 on equipment, he is unable to take any Section 179.
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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