Roy Haugen, NDSU farm economist, says to note the following when preparing your 2009 tax return:
- New for 2009 only is that new agricultural equipment (except grain bins and land improvements) can be depreciated over a five-year recovery period instead of seven years. The 150 percent declining balance method of depreciation must be used. Used equipment purchased in 2009 continues as seven year property.
- The 179 expense election remains at $250,000 for 2009. It generally allows producers to deduct up to $250,000 of new or used machinery or equipment purchased in 2009. There is a dollar-for-dollar phase-out for purchases above $800,000. The maximum 179 expense deduction is scheduled to revert back to $134,000 for 2010.
- The additional first-year bonus depreciation is available for 2009. It is equal to 50% of the adjusted basis after 179 expensing. It applies only to new property purchased in 2009 with a recovery period of 20 years or less. It is scheduled to be repealed for 2010.
- Income averaging can be used by producers to spread tax liability to lower income tax brackets in the three previous years. This is done on schedule J. North Dakota farmers who elect to use income averaging for federal purposes also may use Form ND 1FA (income averaging) for North Dakota income tax calculations.
- Crop insurance proceeds can be deferred to the next tax year if you are a cash-basis taxpayer and can show that normally more than 50% of the crop is sold in the year after it is produced. Producers with Revenue Assurance or Crop Revenue Coverage revenue coverage may receive an indemnity as a result of price declines and yield loss. Indemnities from price declines are not deferrable. If is it not line-itemed from the insurance company, contact the company to find out what part of the indemnity is from a price decline and what part is from a yield loss.
- A livestock deferral can be done for those who had a forced sale of livestock because of a weather-related disaster. Two methods can be used. In the first method, income can be deferred to the next year for all types of livestock sold prematurely. In the second method, income from livestock held for draft, breeding or dairy purposes is not taxed if like-kind animals are repurchased within four years (or more depending on weather conditions, disaster declarations or extensions) from the end of the tax year in which the animals were sold. Only the gain on the sale of those animals above and beyond what was normally sold would qualify for postponement.
- For 2009, long-term capital gains and qualified dividends have a zero tax rate for those in the 10% or 15%t tax bracket and a 15% rate for those in higher tax brackets.
Find more information agricultural tax topics in the Farmers Tax Guide, Publication 225. It can be obtained at any IRS office or can be ordered by calling (800) 829 3676. Any questions about these topics should be addressed to your tax professional or the IRS at (800) 829-1040 or www.irs.gov.
North Dakota income tax questions can be addressed to the North Dakota Tax Department at (800) 638 2901 or www.nd.gov/tax.
Source: NDSU Extension Communications