Farm taxes are not something that any grower looks forward to, but recent updates to Section 179 might help your bottom line.
At AgAmerica Lending, our team likes to stay informed of relevant information that can help you grow your agribusiness. There are some new laws when it comes to your taxes that could mean additional deductions and savings when it comes time to file in 2019. Updates to depreciation in Section 179 allow for greater limits for tax deductions on farm equipment, for example. But first, it’s important to remember that these deductions apply to agribusinesses on a small and medium scale.
Deductible Farm Expenses for Small- and Medium-Size Farms
The Internal Revenue Service is pretty clear on whether a farm is a hobby or a business. In order to deduct taxes from farm equipment, a farmer has to prove what he has is a business. For instance, farmers have to show that not only do you have the knowledge to make a profit, but also that you conduct yourself in a businesslike manner and you are actively seeking to make a profit. A farm must market or advertise and sell products such as crops or livestock.
That being said, here are the updates to Section 179 for tax deduction on farm equipment:
- The deduction limit was raised. Before the increase, the tax deduction on farm equipment was limited to $500,000 with a threshold of $2 million in total purchases. With the update, the limit has increased to $1 million with a purchase cap of $2.5 million. Farmers can deduct purchases as little as $5,000 or as much as $2.5 million, and deduct the full cost of the equipment in their 2018 taxes up to $1 million.
- First-year bonus depreciation was increased. Between 2015 and 2017, the bonus depreciation limit was set at 50 percent and farmers could only include new assets. With the recent updates, farms can take advantage of 100 percent first-year bonus depreciation for both new and used equipment purchases. This update will remain in effect until year’s end 2022. Afterward, the bonus depreciation will gradually become less over time. The following depreciation schedule is in place for after the end of 2022:
- From January 1, 2023 to before January 1, 2024, only 80 percent bonus depreciation will be allowed for equipment and/or property placed in service.
- From January 1, 2024 to before January 1, 2025, only 60 percent bonus depreciation will be allowed.
- From January 1, 2025 to before January 1, 2026, bonus depreciation limit decreases to 40 percent.
- From January 1, 2026 to before January 1, 2027, bonus depreciation limit decreases to 20 percent.
This temporary increase allows growers and ranchers to write off these investments, and during times such as these when many are still recovering from recent hurricanes and other weather events as well as managing the expenses associated with diseases such as citrus greening, it can make all the difference.
Tax Deductions That Help Growers & Ranchers
There are other deductions and new laws that take effect this year, but this is certainly one of the significant updates that can help growers and ranchers with their bottom line. Before making any big equipment purchases (or other “property placed in service” items, such as off-the-shelf computers, cattle for breeding, etc.), we recommend consulting with your accountant or tax professional. He or she can help make sure that your farm taxes are filed correctly and that all deductions are in order.
Should you need assistance with any agricultural financing questions, don’t hesitate to contact our knowledgeable team here at AgAmerica Lending, or find out how much you could save with our agricultural lending solutions using our land loan calculator.