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Hit by floods in '08? You may have tax breaks coming

Agriculture.com Staff 12/10/2008 @ 9:00am

Tax time will be here before you know it. And, if your farm was adversely affected by flooding during 2008, you may have some tax incentives coming your way.

When Congress passed the Emergency Economic Stabilization Act of 2008, the package included tax incentives for businesses -- including farms -- in the areas hit hardest by the floods, according to University of Illinois ag economist Gary Hoff.

The stimulus package provides a 50% "bonus depreciation" for all business taxpayers located in areas that were declared primary disaster areas after the June flooding. The property must have been "placed into service" between January 1 and December 31, 2008, Hoff says. Fifty percent of the bonus depreciation is available to property and landowners, he adds, if:

  • The property has a recovery period of 20 years or less, or is computer software that is depreciable over three years, water utility property, or qualified leasehold improvements. Unlike the normal 50% bonus depreciation property, it also includes nonresidential real property and residential rental property.
  • Substantially all use of the property is in a disaster area and the disaster occurred before January 1, 2010. The property must be used in the active conduct of the taxpayer's trade or business.
  • The property replaces or rehabilitates property condemned or destroyed because of the disaster.
  • The property is acquired after the date of the disaster. No written binding contract can be in place prior to the disaster.
  • The property is placed in service by December 31, 2011, or December 31, 2012 if it is nonresidential real property or residential rental property. Used property acquired outside of the disaster area may qualify. However, the eligible taxpayer's first original use of the property must be within the disaster area.

Though the economic stimulus measure does provide tax relief for those hit by the '08 flooding, there are provisions to which you must adhere to get the full tax incentives, Hoff says.

"If they lost grain bins due to the flood, they have until the end of 2011 to replace and put the new grain bins into service as long as the purchase is after the date of the flood," he says. "The same is true if they lost or had substantial damage to a farm building. If they lost a rental house, they have until the end of 2012 to build and place the new rental house into service.

"If a farmer lost a combine due to the flood, he can purchase a used combine from anyone other than a related party if the combine is located outside the disaster area," Hoff adds.

The tax incentives are available only for those farmers in areas that were declared disaster areas by the President this summer. A complete listing of the counties included in this designation is available at the Internal Revenue Service (IRS) Web site at www.IRS.gov.

Tax time will be here before you know it. And, if your farm was adversely affected by flooding during 2008, you may have some tax incentives coming your way.

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