5-Year Farm Equipment Depreciation Ends in 2009

Kurt LawtonAg Leader, Equipment, Financing, sustainability

Insights WeeklyThere’s still time to earn quicker depreciation—as well as a 50% first year deduction—by investing in tools of precision farming if you buy and take possession of the equipment by December 31, 2009.

“Machinery is normally depreciated over 7 years, but a one-year legislative change for 2009 allows for 5 year depreciation,” says Rob Holcomb, University of Minnesota Extension Educator in Ag Business Management. “For 2010 it reverts back to 7 years.

“For example, if a farmer buys a $100,000 tractor, his first-year depreciation using straight line figuring would be $7,142 using 7 years, versus $10,000 on 5 years. Granted, this won’t make a huge impact, but it does help,” Holcomb says.

There’s also a maximum dollar limit deduction you can claim under Section 179. “That amount is $250,000 for 2009, but drops to $134,000 in 2010,” he adds.

50% Bonus. In addition to the 5-year depreciation, machinery and other qualified property (see Farmer’s Tax Guide link below, Chapter 7) are eligible for a 50% bonus depreciation in 2009. “Next year, this bonus will only be available for property with a recovery period of 10 years or longer, transportation property, and certain aircraft ,” Holcomb says.

Should a farmer invest now? Holcomb says it largely depends on the tax bracket of the individual, how much pre-buying he does before year’s end, and numerous other factors. “And due to narrower margins this year, there’s a general assumption out there that 2009 won’t wind up being as profitable as 2008 or 2007. So it’s best to get with your tax advisor in early December,” he says.

The accelerated depreciation schedule may not be extended again, according to Paul Kindinger, president and CEO, North American Equipment Dealers Association (NAEDA). In fact, the measure almost didn’t pass this year. “If the economic stimulus package works, Congress will likely have less enthusiasm for an accelerated depreciation tool because it costs the U.S. Treasury and is supposed to be a temporary tool,” he adds.

For more information:
2009 Farmer’s Tax Guide (IRS Publication 225)

Section 179 Deduction

Section 179 Calculator

IRS explanation of Section 179 Deduction