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'Pole barns & taxes': How new tax law affects farm buys

Looking to beat the tax man and make some last-minute equipment or machinery buys for your farm before the year's end? You may now have some more incentive to do so.

Just before Congress headed home for Christmas, President Obama on December 17 signed into law the Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010. The law includes a 100% depreciation bonus for "capital investments places in service after September 8, 2010 throught December 31, 2011," according to information from the Associated Equipment Distributors, Inc. The new provision doubles the 50% depreciation bonus from previous legislation that applied to purchases between January 1 and September 1, 2010.

What's that all mean? It basically lifts the previous $125,000 ceiling on eligible expenses stipulated in Section 179 deductions. But, more importantly, it allows you to claim a 100% bonus depreciation (versus the previous 50% bonus depreciation) on new farm equipment or structure purchases. In other words, it may help you get more bang for your buck if you're planning to buy either new equipment or farm buildings.

"They retroacted the 100% bonus depreciation available for new equipment purchases including other farm structures, including machine sheds and pole barns in addition to single-purpose structures like grain bins," says Joan Porsch, certified public accountant with Kennedy and Coe, LLC, based in Goodland, Kansas.

Previously, the bonus depreciation was only for single-purpose farm buildings like grain bins, Porsch adds. But now, other multi-purpose buildings are eligible for the bonus depreciation, a key change in the law.

"Pole barns and machine sheds, in addition to grain bins and single-purpose structures, are included," Porsch says. "It makes that deduction available to those other structures as a bonus deduction versus a Section 179 deduction."

Will the law's change have much of an effect? One Farm Business Talk member says she thinks it could be enough to turn speculation and intentions into action.

"[It] may jumpstart a bit of business investment, especially if people are sitting on cash and needed an incentive to spend it," says Kay/NC.

Porsch says she has more farmer customers looking at new machinery right now than in the past. It's likely not exclusively because of the expansion of the bonus depreciation, but it's a larger part of the equation this year. Still, it's too early to tell if it will mean much to the bottom line for 2011 taxes.

"Timing is being decided as a tax planning item versus what we need to do. I've got people out shopping for combines right now. If they need one, ordinarily, they'd wait until spring or first part of summer for wheat harvest until they bite the bullet and buy it or find what they want," Porsch says. "I think equipment is such a big-dollar item, they may replace something a little earlier than they thought. We'll see if it makes sense from a tax perspective."


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