Farmers: Forget machinery tax breaks

Farmers were lent a financial hand when Congress passed tax incentives, from $250,000 to $500,000, for new and used farm machinery as part of the Small Business Jobs Act in 2010.

Another ancillary bill, The 2010 Tax Relief/Job Creation Act, created a 100 percent bonus-depreciation allowance for new farm assets purchased after Sept. 8, 2010 and before Jan. 1, 2012.

The catch?

“Just because checks have been written for the item that you’re buying, it isn’t good enough; it has to be present on your farm by that date,” said Rob Holcomb, a University of Minnesota agricultural business management extension educator in a Farm Industry News story.

Farmers must ensure that their new assets are either on-site or are in service before the tax expiration date.

Besides assisting farmers with substantial business costs, the bills were also responsible for inciting a surge of the agricultural equipment industry.

These tax breaks terminate at the start of the new year, making farmers’ year-end tax planning more difficult.

According to an story by Gary Maydew, these tax breaks have three important implications for farmers’ year-end tax planning:
  • Faster equipment write-offs: Before passage of the bill, the maximum amount that could be expensed in 2010 (the Sec. 179 expense allowance) was $250,000. The Act increased the limit to $500,000 for both 2010 and 2011.
  • Health insurance complications: For 2010 only, farmers could deduct health insurance from their self-employment income to determine their self-employment tax.
  • Reporting requirement for farm landlords: Farm landlords, like operating farmers, issue Form 1099 Misc. to vendors for whom they have paid more than $600.
Proponents of the bills believe in their ability to help America’s dire financial situation.

“They are tools that really do stimulate the economy and that’s what lawmakers want right now,” said Paul Gervais, a farmer quoted in a Farm Industry News story.

Farmers are hoping that Congress will reinstitute the tax incentives, but given the circumstances of the economy, it’s no guarantee.

Holcomb notes that farmers should always check with their tax professional to learn how any tax-law changes might impact their bottom line and should also exercise caution when purchasing machinery that won’t be delivered by the end of the business year.

Have farm-machinery write-offs helped you or a farmer who you know? Should Congress work to extend both pieces of legislation?

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