(UPDATE, Dec. 6: House members passed a one-year extension of tax breaks for businesses Dec. 3, including Section 179, which allows farmers to deduct $500,000 annually for expenditures under $2 million, a tax credit for biodiesel, and a wind-production tax credit. The Senate has yet to take up the issue)
WASHINGTON — An upcoming Congressional decision on one of 55 expired tax provisions could have impact the next generation of family farms, according to Jim Mulhern, president and CEO of the National Milk Producers Federation.
“Failure to restore section 179 (of the Internal Revenue code) will add to the financial strains on asset-rich, cash-poor family farmers who already find it difficult to pass on their farms to the next generation,” Mulhern said.
The tax provision, up until its expiration in 2013, allowed farmers and other small business owners to write off up to $500,000 in capital purchases such as equipment, along with allowing for a 50 percent depreciation deduction each year.
A Nov. 18 letter sent to U.S. House and Senate leaders and signed by a consortium of 42 agricultural organizations representing dairy, grain, produce, and livestock farmers, along with groups such as equipment manufacturers and rural electric cooperatives, requested the reinstatement of both aspects of the provision.
Prior to the passage of the section 179, the annual write-off threshold for capital purchases was $25,000, with no depreciation percentage. If section 179 is not extended, the tax code will revert to this formula.
Impact on dealers
The extension of the tax provision affects not only farmers, but manufacturers and dealers as well.
“It has absolutely has had an impact,” said Kim Rominger, executive vice president and chief executive officer for the Ohio Michigan Equipment Dealers Association, “especially in the last several years when grain prices were high and farmers were flush with cash.
“It is a huge incentive for farmers, especially at year end when they are planning for next year. Every dollar that can be saved and put back into the business instead of being spent on taxes is a plus.”
Likelihood of passage
Chris Galen, senior vice president of communications for the NMPF, said he was hopeful, but realistic, about how quickly Congress is likely to take action.
“They are looking at several other tax issues and if (section 179) expires, it could be looked at as a tax increase; if extended, there is less tax revenue,” he said.
Larry Gearhardt, a field specialist in taxation in the College of Food, Agricultural, and Environmental Sciences at the Ohio State University, said that while there is every indication that Congress will pass section 179 as an “extender bill,” the question becomes when that will happen and how the timing will affect farmers’ ability to write off large capital purchases.
“The trend has been that they would pass a provision in an ‘extender bill,’ generally in two-year chunks,” Gearhardt said “But because of logjam in Congress, there was no extension into 2014, so (the write-off threshold) remained at $25,000 with no bonus depreciation.”
Now, he added, people are confused with what they can write off and what they can’t.
In some cases, Gearhardt said, when Congress has waited until the following year to pass an extender bill, it has been made retroactive to include already purchased equipment.
“But even if it is passed retroactively, the purchase will have had to have been make in 2014,” he cautioned.
Gearhardt said his advice to farmers is to examine current income and expenses and, if considering a large capital purchase, make that purchase before the end of 2014.
“Most progressive farmers will have contracted for grain delivery, so I don’t think the low-income year is going to be 2014, but rather 2015,” he said.
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