Yes! You Can Write Off That New Machine Shop (At Least 50%)
We got the following question from a reader:
“I built a new farm workshop in 2012, can i take 1/2 of the cost off and depreciate the rest over time? I read something regarding bonus depreciation on workshops and was wondering if this qualifies?”
Bonus depreciation was placed into the tax laws as a result of the 9/11 attacks. It was designed to provide stimulus to the economy and has allowed up to 100% bonus depreciation on any new assets with a tax life of 20 years or less and you are allowed to deduct that percentage immediately. Unlike Section 179, there is no income limit, however, it must be new equipment or property.
For most real estate investors, bonus depreciation is not allowed since the tax life is either 27.5 or 39 years. However, all farm buildings including machine sheds, barns, hay storage, etc. have a 20 year life, therefore, they qualify for bonus depreciation. If you are building a new machine shed this year, it must be finished and in service by December 31, 2013 to qualify for the 50% bonus depreciation. The remaining 50% is depreciated over 20 years.
As an example, assume our farmer builds a new workshop for $250,000. He can immediately deduct 50% of this or $125,000. The depreciation deduction on the remaining $125,000 is 3.75% or $4,688 for a total deduction of $129,688. Without bonus depreciation, the farmer would only have a $9,375 depreciation deduction in 2013.
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.
Paul, can you depreciate farm equipment above and beyond your farm income? This would be an offset to other capital gains revenue from royalty received.