While sliding crop prices may be a big reason farm equipment sales have slumped in 2015, another factor is uncertainty over a popular tax rule that allowed significant first-year write-offs for equipment purchases. Called Section 179, the measure played a big role in equipment buying decisions through 2013, but starting in 2014 when the generous tax provision expired, uncertainty appeared.
The 2014 Section 179 tax extender was passed in late December 2014 giving farmers little time to act on the provision (you have to take possession of the machine to claim the deduction). The same happened in 2015, but with a twist. Section 179 has been past retroactive for 2015 with the $500,000 deduction limit (without the measure the limit was $25,000), but this time the rule has been made permanent.
Congress passed the measure early last week, and it was signed into law by President Obama - along with a comprehensive Omnibus spending measure - just before he flew west to Hawaii for vacation.
Farm groups praised the tax extender move noting that this is significant for farmers. The same tax bill also extended the biodiesel tax incentive, but also did not stop import of biodiesel from international sources. The tax bill is a major compromise that offered a range of benefits for different groups. It’s been attacked by some as welfare for businesses, but each side of the Congressional aisle got many provisions they wanted.
The key is getting some certainty back into the tax code, which is important if you’re running a business for the long haul and what farmer isn’t doing that. While the slumping farm market will hinder purchases for different reasons, farmers looking to continue keeping up with technology improvements by updating their equipment have new help in that approach.
For livestock producers who delayed equipment purchases when times were lean, the 2015 retroactive nature of this tax move is good news for those that finally did buy equipment this year when livestock prices rebounded.
And if you’re in a holding pattern, at least now you know when financial times do improve this enhanced Section 179 provision will be there waiting for you to take advantage of it for your operation.
The bill also includes a five-year extension of bonus depreciation for property acquired and put in service during 2015 through 2019, with an added year of certain property with a longer production period. The bonus is 50% for property put in service in 2015, 2016 and 2017. It slides to 40% in 2018 and 30% in 2019.
Talk with your tax adviser before year end to make sure you maximize the tax benefit of any purchases you made in 2015; and review your equipment buying plan for 2016 with an eye toward this now-permanent Section 179 provision.