Year-End Tax Deductions on Equipment Buys

Kurt LawtonAg Leader, Education, Equipment, Financing, Insights Weekly, sustainability

Insights WeeklyWith the end of the year upon us, it’s always wise to check with your tax professional to discuss possible year-end investment strategies on equipment purchases.

Gary J. Hoff, agricultural economist, University of Illinois, says that legislation passed by Congress and signed by the President on September 27, 2010 will reduce the tax bite for many farmers this year. Here’s a look at one of the provisions of the Small Business Jobs Act of 2010 (SBJA) that may have a major impact on small businesses including farmers, which affects the amount of self-employment tax liability for 2010.

Section 179 Expensing Election. Congress has once again increased the IRC §179 expensing election. Instead of a maximum deduction of $250,000, Congress has increased the deduction to a maximum of $500,000 for tax years beginning in 2010 and 2011 only. The deduction is reduced if qualifying purchases exceed $2 million.

Farm equipment and all of the other assets that qualified for the deduction in the past continue to qualify. SBJA also added three new categories for 2010 and 2011.Two of the new categories do not apply to a farm return; however, one may be applicable.

The expensing election now applies to qualified leasehold improvement property. This is any improvement to an interior portion of a building that is nonresidential real property. Either the lessee or the lessor can make the improvement to the portion of the property included in the lease. The portion must be occupied exclusively by the lessee. The improvement will only qualify if the property has been in service more than three years. Certain improvements do not qualify, such as an enlargement of the building, a structural component benefitting a common area, and an expense attributable to the internal structural framework of the building. In addition, the lease cannot be with a related party.
While the §179 maximum deduction is $500,000, the maximum deduction for the qualified leasehold improvements is limited to $250,000.

50% Bonus Depreciation. The 50% bonus depreciation deduction for qualifying property was set to expire at the end of 2009. However, SBJA extended the deduction for 2010. The qualifying property must be placed into service before January 1, 2011. No change was made to the property qualifying for the 50% bonus.

Visit these links for more information.

University of Illinois ‘the farm gate’ blog: “Income Tax Changes for Farmers: Are You Ready”

DTN Story: Rev Up Year-End Tax Deductions;jsessionid=04AF146BC6F937E0E7A7F190288D8B18.agfreejvm2?symbolicName=/free/news/template1&paneContentId=2003&paneParentId=70104&product=/ag/free/home/quickview&vendorReference=0702DA77

Farm Industry News: 100% equipment tax deduction deadline nears.

Check out DTN online seminars here:

Iowa State University Center for Ag Law and Taxation – Latest Newsletter here:

IRS Publication 225 (2010) – Farmer’s Tax Guide

IRS Section 179 Expense Deduction – Farmer’s Tax Guide

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