Published on Wednesday, 30 November -0001 00:00
Farmers who make capital investments to their farming operation have until the end of 2004 to take advantage of bonus depreciation on federal tax returns. Newly acquired eligible assets such as field drain tile must be put into service before Jan. 1, 2005, to qualify for the 50 percent bonus depreciation. Another important tax consideration is the Section 179 expensing deduction for first-year depreciation. The Section 179 deduction increased from $25,000 in 2002 to $100,000 in 2003, for the years 2003, 2004 and 2005. Under this new provision, taxpayers can expense up to $100,000 of equipment purchases in the first year. Drainage tile, single-purpose farm buildings and equipment qualify for this option. In the past, the Section 179 deduction began to phase out when more than $200,000 of qualifying property was purchased and placed into service in one year. Now the threshold has been increased to $400,000. The write-off is reduced dollar-for-dollar of total property placed in service if the threshold is exceeded. The write-off will phase out completely if purchases are $500,000 or more. Vehicles with a gross vehicle weight of 6,000 pounds or more still qualify for the deduction; light trucks and smaller cars do not qualify. This Section 179 Depreciation Allowance is to be phased out after 2005. It is important to consider depreciation when making capital expenditures, but it should not be a major contributor to the purchase decision. Farmers and landowners should consult with an accountant or tax advisor for specific advice before purchasing. For more information, go to www.cffm.umn.edu/Pubs/AgTaxUpdateOct2003.pdf. Bill Craig is an educator specializing in ag business management with the University of Minnesota Extension Service Regional Center, Crookston.