The Internal Revenue Service (IRS) Section 179 tax deduction has in recent years been the driver of a lot of year-end farm machinery and equipment purchases. The deduction allows a business to deduct the full purchase price of machinery that’s financed in the current tax year under a set price limit.
Though that amount has fluctuated based on different federal economic stimulus measures since 2008, this year’s Section 179 deduction limit is $500,000 and is good for any new or used equipment. Though the deduction is capped at $500,000 for these purchases, bonus depreciation can add to the savings in subsequent years after a purchase.
In addition to the extension of the Section 179 deduction, bonus depreciation remains in effect at a 50% level for 2016, though it’s likely the last year at that level as the federal government begins phasing it out in the next 4 years.
That means this year, producers can depreciate 50% of new equipment purchase costs, though by 2018, that number will be 40%, then 30% in 2019. After 2020, bonus depreciation, much like the Section 179 deduction, will be renegotiated and implemented anew. Bonus depreciation only applies to new equipment purchases, typically after the Section 179 deduction is exhausted.
“The Section 179 deduction will continue to be a good incentive to purchase or finance equipment by year’s end if you have a need to upgrade equipment while taking advantage of tax incentives,” says Minnesota-based AgDirect Territory Manager Tate Moser. “Keep in mind Section 179 applies to both new and used equipment purchases and that it’s always a good idea to talk to your tax accountant before making year-end purchase decisions that have tax implications.”
Farm machinery is just one item eligible for a Section 179 deduction. Other property includes:
- “Off-the-shelf” computer software
- Property contained by or part of an agricultural building, like refrigerators or testing equipment
- Livestock, including horses, cattle, hogs, sheep and goats
- “Partial use” property that is used for business purposes more than 50% of the time.
More machinery-buying resources
More helpful Section 179 links