Previous law required a 7 year depreciation period
This provision is only applicable to 2009 purchases
Bonus Depreciation Extended until 31 December 2009
Bonus depreciation when combined with the new 5 year depreciation period for AG equipment provides an enhanced depreciation deduction for farm customers.
Section 179 deduction of $250,000 extended until 01 January 2011
The American Recovery and Investment Act of 2009 was passed by Congress and signed by the President. This bill extended several tax provisions that are advantageous for farmers. In addition, law changes passed last year increase the speed at which AG equipment may be depreciated. AG equipment purchased and placed in service during 2009 will be depreciated over a 5 year period rather than the 7 year period previously required. This accelerated depreciation schedule for AG equipment is only available for 2009 purchases.
The three provisions listed in the highlights are described below:
Section 179:
The Section 179 deduction of $250,000 has been extended another year until 01 January 2011.
A section 179 deduction is available for both newand used equipment purchases.
The cap where this benefit phases out is now $800,000. This means customers who place into service, qualifying assets with a value of less than $800,000 will be able to expense the first $250,000 of such asset purchases during 2009 and depreciate the remaining balance over normal deprecation periods using normal depreciation methods (including applicable bonus depreciation). If more than $800,000 of qualifying property is purchased, the available 179 deduction is reduced $1 for each dollar of eligible property purchased over $800,000.
Qualifying assets would generally be tangible personal property used in a trade or business. Therefore items like land improvements and buildings do not qualify. Generally equipment manufactured and sold by Deere would qualify as long as it is used in an active trade or business.
Examples:
Example 1: If $350,000 of qualifying property was purchased then $250,000 would be eligible for immediate expensing. The remaining $100,000 would be subject to bonus depreciation as outlined in the schedules below.
Example 2: if $900,000 of qualifying property was purchased then the maximum 179 deduction would be $150,000.
Example 3: if $1,000,000 of qualifying property was purchased then the 179 deduction would be $50,000.
Bonus Depreciation:
For property purchased and placed in service during calendar 2009, the original user/purchaser will be allowed to take additional first year depreciation in the amount of 50%of the customer’s tax basis/cost[1]. The depreciation tables below indicate the type of dramatic impact this can have on a customer’s depreciation deduction. In year one, a new piece of AG equipment will enjoy a 57.5% write off while construction and CCE equipment will enjoy a 60% write-off for the first year.
This additional first year depreciation is not available on used equipment. However, major repairs/reconditioning of machines which are capitalized would qualify for the additional first year depreciation.
Agricultural & Turf Examples:
Using new 5 Yr life + Bonus Depreciation
A $100,000 piece of equipment used in the business of farming has depreciation available:
(5-year depreciation using 150% declining balance and half-year convention)
Regular 50% Bonus
2009 15,000 57,500
2010 25,500 12,750
2011 17,850 8,925
2012 16,660 8,330
2013 16,660 8,330
2014 8,330 4,165
Using a $10,000 piece of equipment the depreciation available:
(5-year depreciation using 200% declining balance and half-year convention)
(Your actual depreciation method and life will depend on your business classification)
Regular 50% Bonus
2009 2,000 6,000
2010 3,200 1,600
2011 1,920 960
2012 1,152 576
2013 1,152 576
2014 576 288
We strongly recommend you consult with your tax advisor to see how these tax saving opportunities apply in your situation. Customers may also be able to take advantage of the 179 deduction where up to $250,000 of 2009 capital purchases may be written off. The full 179 deduction only applies to customers who acquire no more than $800,000 of equipment during the year. The 179 deduction phases out once purchases exceed $800,000. (See explanation above).
Article reprinted with permission from Central Equipment.
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[1] The customer’s cost can be impacted by trade-ins and other special situations.
Article reprinted with permission from Central Equipment.
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