Editor's note: Get the latest Section 179 news - What You Need To Know About Section 179
One of the most important sections of the tax code for small business owners, like farmers, is Section 179. Section 179 allows you, as a small business owner, to get your entire depreciation deduction in one year, rather than taking it a little at a time over the term of an asset's useful life, which in some cases can be up to 39 years.
Prior to the initial Stimulus Act, this section of the tax code allowed businesses to expense up to $125,000 on qualifying equipment and the deduction began to phase out for companies that spent more than $500,000 within that tax year. That made Section 179 a small business tax incentive of sorts.
Eventually, over time, the plan was to wind down this Section and eventually eliminate it completely. However, over the last few years it has received numerous updates and gained attention via multiple Stimulus Acts.
The expensing limit for 2013 was $500,000. This is important to take advantage of as currently this is a special exception with no guarantee of it being offered next year. Bonus Depreciation, allowing 50% of an asset to be expensed in one year is also available for 2013.
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Also, small businesses that are not profitable in 2013 can use 50% Bonus Depreciation – on new equipment only – and carry-forward the loss to future profitable years. Remember that to qualify, the equipment listed must have been purchased and put into use between January 1, 2013 and December 31, 2013.
On Jan 1, 2014, the 179 deduction was reinstated at $25,000. Bonus depreciation is not available. Congress is currently working on the Tax Reform Act of 2014, which currently includes language to raise the 179 to $250,000, but not restore bonus depreciation.
Eligible property is generally limited to tangible, depreciable, personal property which is acquired by purchase for use in the active conduct of a trade or business. This applies to new and used equipment, and can also apply to certain software. Buildings qualified as real property can also now be deducted since the passage of the Small Business Jobs Act of 2010.
Information gathered here came from the IRS website, but always check with your accountant for the best use for your situation and the most updated information.
Some tax accountants are alarmed about the $25,000 limit for 2014, and have stirred up their farmer clients. However, Purdue University tax specialist Michael Langemeier says this has happened before, and it has always been raised.
As noted above, Congress is already at work on legislation that could include changes in this limit.
The opinions of Jennifer Campbell are not necessarily those of Indiana Prairie Farmer or the Penton Farm Progress Group.