A highly effective tax allowance for farmers and other small business owners has been scaled back considerably in 2014, but that still could change before the end of the year.
Section 179 of the IRS tax code allows businesses to deduct, for the current tax year, the full purchase price of financed or leased equipment, rather than depreciating it over time. Both used and new equipment qualify.
In 2013, the maximum deduction was $500,000 and the total purchase limit was $2 million. The allowance worked especially well when lease-back arrangements with lenders were formed. Producers were able to finance equipment via lenders, lease it back from them, and take the Section 179 deduction for the full value of the equipment, all in one year.
The provision still is in place for 2014, but the deduction limit dropped significantly, to $25,000, with a total purchase limit of $200,000.
In April 2014, the Senate Finance Committee approved a two-year extension of the $500,000 deduction level. In June, the U.S. House passed a bill that approved permanent restoration of the $500,000 deduction level. But since that time, progress has ground toa halt. The Senate Finance Committee’s package has stalled in the full Senate and has not yet come to a vote.
If the item does not come to vote before the end of the year, the default level of $25,000 will stay in place for 2014.
Between now and Dec. 31, stay in touch with your tax accountant, and check http:// www.section179.org regularly for status updates.
To learn more about available tax-management strategies, you can access the IRS Farmer’s Tax Guide, IRS publication #225, at www.irs.gov/pub/irs-pdf/p225.pdf
Editor’s note: The following article is from our November 2014 print edition. Read the entire edition when it’s live online at http://www.dairyherd.com/dairyherd-issue-archives/.