Madison, Wis. – Farmers who purchase tractors or other equipment, livestock, or vehicles or who decide to invest in new farm buildings this year may be able to take an additional 30 percent first year depreciation deduction on their taxes for 2002.
The change in the depreciation rules is part of the Job Creation and Worker Assistance Act of 2002. This measure was intended to stimulate the economy following the Sept. 11 attacks on the World Trade Center.
Big incentive. According to Phil Harris, University of Wisconsin-Madison agricultural economist and extension farm law specialist, this change may provide a strong incentive for farmers who were considering a big-ticket purchase to go ahead with their plans.
“The additional depreciation deduction means that you can reduce your taxes in the first year of the purchase,” he explained. “It’s almost like getting an interest free loan.”
Specifically, Harris thinks that farmers who have been considering expanding a dairy operation – constructing a free-stall barn or a milking parlor or increasing the size of their herd – may be encouraged to move head with these plans.
Depreciation deduction. In general, the provision allows for the accelerated depreciation deduction for qualifying business property that has a depreciation life of 20 years or less. That includes new farm buildings, except for housing for farm workers, and new equipment and livestock that is purchased after Sept. 10, 2001, and before Sept. 11, 2004, and put into service before Jan. 1, 2005.
The act also raises the total allowable deduction for an automobile used in a business from $3,060 to $7,660.
Automatic. The accelerated depreciation schedule will apply automatically unless the taxpayer formally elects out, Harris said. This is a choice that might be wise for a farmer who is just starting out in business or who expects a smaller than average business income for 2002 for some other reason.
Harris said this temporary business investment incentive offers an opportunity for some farmers, but he added, “I do not think that anyone should make a decision to purchase or build anything based solely on this new deduction. For those who have been weighing the options, this might tip the balance. However, it has to be a good business decision in the first place.”
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