What started as a way to help small businesses make capital purchases has expanded into a significant stimulus program that has helped thousands of farmers buy farm equipment and cut their tax bill as farm incomes have risen. It's called Section 179 after the portion of the tax code where rules for this depreciation section reside.
It's a powerful tool that has stimulated plenty of equipment purchases. The depreciation started at $10,000 years ago - I even took advantage of it when running my small freelance business in the early 1990s - has expanded well beyond that to allow significant tax savings when you buy new equipment.
Of course you have to take delivery in the tax year - and that means the machine must physically be on your farm. So as December gets rolling and the year-end approaches, if you're thinking of maximizing that depreciation one more time you might want to talk to your farm equipment dealer.
Inventories are solid. Our friends at the Association of Equipment Manufacturers note that field inventories of major equipment remain solid. Of course, getting just the right machine you want for your farm may be a challenge. While inventories are steady, where specific pieces of equipment are in the system can be a bigger question.
Starting the conversation with your dealer soon will help assure you can maximize the depreciation. Under this program, may revert to much lower numbers for the 2014 tax year, you have the following limits:
2013 Deduction Limit = $500,000
2013 Limit on Capital Purchases = $2,000,000
2013 Bonus Depreciation = 50%
That's a hefty cut in your tax bill if you're buying equipment this year, however at this time it's going away too. After 2013, the deduction limit drops to $25,000 and the 50% bonus depreciation would expire as well. The 2013 (and retroactive 2012) extension of Section 179 enhanced depreciation will expire this year.
Late in 2012 we thought the Section 179 would revert to that lower number and Congress came through at the last minute. Whether they have the same appetite for cutting your tax bill remains to be seen. Right now I'm just hoping for a farm bill.
You can get all the ins and outs of Section 179 by visiting section 179.org. It's an informative website with plenty of good background information you can use. As always, talk with your tax professional before making any moves that could impact what you owe Uncle Sam.