Farmers making equipment purchase decisions this year may be able to take advantage of substantial tax savings under the Section 179 updates outlined in the reformed tax code.
The Section 179 deduction limit for 2018 was raised to one million dollars with a total equipment purchase cap of $2.5 million. This is a significant increase from the 2017 Section 179 tax deduction which was set at a $500,000 deduction limit with a threshold of $2 million in total purchases.
Section 179 affords farmers the opportunity to deduct the full cost of equipment from their 2018 taxes up to $1 million, and targets purchases anywhere from $5,000 to $2.5 million. Once the $2.5 million limit is reached, the deduction decreases on a dollar for dollar basis and expires when $3.5 million worth of equipment is purchased, making it a true incentive for small and medium-sized businesses, including farms.
The new tax law also increased first-year bonus depreciation to 100% and expanded qualified property to include both new and used equipment purchases. Bonus depreciation was previously set at 50% between 2015 and 2017 and only included new assets.
The 100% bonus depreciation amount will remain in effect until the end of 2022 when the following phase-down will occur:
● 80% for property placed in service after December 31, 2022 and before January 1, 2024.
● 60% for property placed in service after December 31, 2023 and before January 1, 2025.
● 40% for property placed in service after December 31, 2024 and before January 1, 2026.
● 20% for property placed in service after December 31, 2025 and before January 1, 2027.
“These improved tax incentives could allow farmers to immediately write off capital investments, such as a new combine or tractor, and keep thousands of dollars in their bottom line,” says Minnesota-based AgDirect Territory Manager Tate Moser. “During tight market periods, this can make a big difference when it comes to making purchase decisions.”
In addition to equipment purchases, other eligible items may include “off-the-shelf” computer software, breeding livestock, and single purpose structures such as milking parlors. Before making any large capital purchases, it’s a good idea to consult with an accountant or another professional tax adviser to ensure deductions are claimed according to the Section 179 code.
Click for more information about the Section 179 depreciation updates for 2018.