179 Tax Deductions - Write off tractor

[Doug_D]

hey all,
Still trying to push myself over the hill and pull the trigger on a new tractor. I run a few cows and sell some hay each year, but nothing too serious (70 acres). A good friend said I could expense the entire tractor using a "179 Dedcution" for the year. I guess its something tha congress set up to help the small business out. Has anyone ever done this? I do have some additional income that I need to offset and this would help. Any help?

Thanks,
Doug

 

[PlumCrazy814]

hey all,
Still trying to push myself over the hill and pull the trigger on a new tractor. I run a few cows and sell some hay each year, but nothing too serious (70 acres). A good friend said I could expense the entire tractor using a "179 Dedcution" for the year. I guess its something tha congress set up to help the small business out. Has anyone ever done this? I do have some additional income that I need to offset and this would help. Any help?

Thanks,
Doug

Try this link:
Depreciation and Section 179 Expense

 

[SnowRidge]

If you are farming with a profit motive, you should be able to expense your tractor, along with a lot of other stuff, via a 179 deduction. It's really a no brainer. However, this is assuming you are filing as a farmer, which means Schedule F. If you haven't been doing this already, or don't know what Schedule F is, you probably should talk to a good tax person before you do anything else.

 

[piller]

I am not an accountant, I suggest you check with one, however this is my understanding of how it works:

I believe you should be a farmer and file a schedule F tax form. You buy a tractor, let's say for $10,000. So your cost basis is $10,000. When filing your taxes next year you have the option of using the section 179 one time tax deduction, or you could go with what I believe is a 7 year depreciation schedule.

If you go with section 179, you get the full $10,000 deduction taken off of your income in the first year. If you go with the 7 year depreciation schedule there is a formula and you spread out your $10,000 deduction against your income over 7 years. When you consider inflation and the time value of money, it's much more attractive to go with section 179 and get the full deduction up front.

Make sure that you understand that your deduction is not your tax savings! You are taxed on your income, the deduction is used to reduce your taxable income. Let's say you have income of $50,000, if you go with the one time section 179 deduction you can deduct your $10,000 cost from your income. So now instead of paying taxes on $50,000 you will pay tax on $40,000 of income. So if your tax rate is 25%, your actual tax savings would be 25% of the $10,000 which is $2,500.

Now I'm not sure what happens if you buy the tractor, take the one time section 179 deduction, and then sell the tractor in less than 7 years. Maybe someone else knows.

Finally, I don't know where you live, but I'm in TN and have a tax exemption card so I can buy a tractor and not pay sales tax. You might want to check out the sales tax situation where you live.

Like I said at the beginning, I'm not an accountant, this is just my opinion. Hopefully it helps.

 

[SnowRidge]

Now I'm not sure what happens if you buy the tractor, take the one time section 179 deduction, and then sell the tractor in less than 7 years. Maybe someone else knows.

The deduction must be recaptured according to the depreciation schedule that would have applied if the 179 deduction had not been taken. The income from the recapture is treated like ordinary income, and tax must be paid on it, including both halves of the social security tax, unless you have other offsetting losses.

Again, consult a tax professional for this stuff.

 

[randy41]

In order to take the 179 deduction you need farm income plus w-2 that at least equals that amount. this is your farm income plus your w-2...not yours and your wife's. There is also for the '08 filing year a 50% first year depreciation deduction that can be used to create a loss on your sched f. This doesn't require income that is at least as much as the 179 deduction. You can also use a sched c to do this....especially if you use your tractor for a non-farm business. the 179 deduction has been available for many years now and is not new for 08. Be aware that taking a 179 deduction reduces the basis of the tractor by that amount immediately and if you were to sell that tractor you would have to recapture the 179 deduction as ordinary income.
I am a CPA and would not advise you to do anything without knowing your whole tax situation and therefore advise you to consult with a local CPA who is familiar with issues of this nature.

 

[EFC]

hey all,
Still trying to push myself over the hill and pull the trigger on a new tractor. I run a few cows and sell some hay each year, but nothing too serious (70 acres). A good friend said I could expense the entire tractor using a "179 Dedcution" for the year. I guess its something tha congress set up to help the small business out. Has anyone ever done this? I do have some additional income that I need to offset and this would help. Any help?

Thanks,
Doug

The aditional Bush stimulus plan is good till the end of this year 2008 Economic Stimulus Act Provides Tax Benefits to Businesses Not sure if it works for you but it did for us.

Buck

 

[ALHILLDIRT]

As in any tax matter it is always better to talk with a tax professional, but since I am assuming that you are reporting the income from the farm, then by all means take the deduction. Bear in mind that once you take the 179 depreciation deduction, if you later sell the asset, the amount you receive will be taxed as income/gain, because you have 0 balance in your basis.

 

[Doug_D]

WOW! What a great conversation. We should do more of these. Thanks to all that replied.

Yes, we have been using a schedule F for a few years now. Not huge farm income, but we try. My day job along with other investments treats us really well. A 30k expense would be welcome. Based upon the responses, the only issues would be when I go to sell the tractor. Right now, I don稚 see that happening for a while (past depreciation schedule).

I have the option of pulling more income this year from the sale of an investment, but did not want to do it unless I could find a good way to shield some of the money. This 179 sound like a good option.

Thanks again,
Doug

 

[SCOOBY14B]

Can anyone help an idiot (me) with a queastion. How does the 179 and Bush plan apply to me? I'm wanting to purchase a tractor for my landscape business? Would it be better to buy before the end of the year or after the first of next year?

This year has been terrible because of the economy and drought. It is my 3rd year in business and my accountant has kept me to breaking even or a loss. I'll truly be at a loss this year.

I'll talk to her as well, but give me y'alls opinion.

Thanks

 

[skidoo]

Can anyone help an idiot (me) with a queastion. How does the 179 and Bush plan apply to me? I'm wanting to purchase a tractor for my landscape business? Would it be better to buy before the end of the year or after the first of next year?

This year has been terrible because of the economy and drought. It is my 3rd year in business and my accountant has kept me to breaking even or a loss. I'll truly be at a loss this year.

I'll talk to her as well, but give me y'alls opinion.

Thanks

I believe it applies to business use that would normally be depreciated, not just farm use. But, if you are already breaking even or at a loss, I don't see how another expense would help. Of course, if you are confident that the "investment" in new equipment will result likely result in additional business and profit in excess of the expense of the investment, then by all means, go for it. But, then as you said with the economy, I wouldn't place my bets on that business improving anytime soon.

I believe the IRS will be taking a closer look if you don't turn a profit in at least two or three out of the first five years. Ask you accountant about that. You may be better off to turn a few hundred in profit rather than a loss.

Anyway, if you are that close to even for this year, it doesn't make sense to me to take a 179. If you have to have it now, then depreciate it out into future years as much as possible. But, if you can wait until January, then you have another year to decide how you want to treat it. If you then have a big profit year, you can then benefit from the 179 expense. I don't think the stimulus plan regarding section 179 expenses would make any difference unless you are a big buyer of equipment, i.e. in excess of $128K, which was the amount allowed before the stimulus plan. After the plan, you could expense up to $250K. So, if you are near the break even point, I would be looking at ways to turn a profit rather than find new expenses...

I am not an accountant, so none of my comments above should be taken as advice.

 

[skidoo]

Here is another thing to consider,

If your taxable income puts you in the 10% bracket this year, and you expect more income to raise the bracket in future years, then you would only be saving 10% on that expense for this year. So, I think it would be better to simply depreciate over future years.

But, if say your taxable income put you in the 35% bracket this year, and you expect less income to reduce your bracket in future years, then you would be saving 35% on that expense for this year. In this case, I think it would be better to expense as much as you can with the 179. That is, unless you expect your bracket to increase further due to tax law changes for future years. That is where you have to keep guessing...


Say you purchased a tractor for $10K. It would be kind of silly to say expense this year the whole $10K and save $1K in taxes (10% bracket) and then three years from now sell it for $6K, re-capture and pay an extra ($2.1K) in taxes because you are then in the 35% bracket...

Then again, you might not care and just be happy to have the income that puts you in the 35% bracket...


There are a lot of "what if" variables at play...

 

[randy41]

There are a lot of "what if" variables at play...

This is why its best to consult your CPA. I think I posted this before but if you didn't see it then be aware that a 179 deduction is limited to your profit with the balance being carried forward to future years.

 

[Rowdius]

I've been doing some preplanning on my taxes this year. I am showing a small profit on the farm, but I bought my kioti new this year. Besides the normal 179 deductions, there is a special one timededuction that applies to machines bought new. In my case that deduction is well over $7,000. If I claim it I go from showing a small profit to a several thousand dollar loss. It will be okay for me to show a loss this year, but I'd really need to show a profit next year. With the economy like it is, there is no promise that I will, but then again, I will lose this deduction next year (I think.)

I'm going to hire my taxes done this year I think.

 

[newbury]

Timely thread revival -
My situation - My normal tax preparer had a stroke so she's not working but she's getting better.
I just bought $20K of timber land and now have a total of about 300 acres, all timberland/hunting leased with mostly clearcut/replanted or 20yr growth.

I'm wanting to buy a TLB to maintain roads, haul some old stock out, etc.
I'm sure it will be tax deductible somehow eventually, but presently I'm top bracket, but plan on retiring within 2 years and probably drop down a bracket or two.

Can anyone post some good links for educational info before I walk into a CPA?
I'm pretty sure most CPA's around here (DC) are not that familiar with timber tax/small farmer laws.

Any other advice would be welcome also.
Thanks.

 

[jpsheb]

<bump>

I know this thread's been inactive for a while, but tax rules (and brackets!) change from year to year so I figured I'd resurrect it for a bit. Are the 10%/15% brackets still in place, or is the lowest bracket now 25%?

I'm getting ready to purchase a tractor--most likely new. Are the rules still the same, regarding filing a 179 and deducting all (or depreciating) the purchase? My wife and I are purchasing primarily this to work our timberland, but also to do all-around work at home too.

I will be working with a CPA when filing 2011 taxes, but am interested in understanding as much as I can up front to help plan and budget the purchase.

Is such a purchase deductible from state taxes as well? I'm in NC which has a relatively high sales & income tax rate, though not as high as some places.


Thanks for your help!

-Jack

 

[California]

Bump some more. Time to think about this stuff.

I just posted the following over in another deduction-related thread:
Kubota a Tax deduction?

Since it's relevant here, I'll add it to this thread also:

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I learned an important point in 2009. Two unrelated Enrolled Agents [tax professionals] told me the same thing: Sec 179 (immediate) deduction for purchased equipment can only be applied to extent of earned income. My wife and I were finally retired so had zero wage income reported on a W-2. I asked if Deferred Compensation income or investment income could be counted - no. In my case I could take Sec 179 deduction only up to the point where it brought my Schedule F, farm income, down to zero. I was no longer renting out the little cabin at the ranch so I couldn't apply some tractor cost as 'landscape maintenance' against that rental income as I had in earlier years. I still haven't researched tax law to verify this 'earned income' rule but since both professionals advised getting it wrong would result in an audit, I relied on their professional opinion and did it their way.

One last comment - don't apply common logic to your circumstances and then assume tax law will match your conclusions. Think instead that the latest tax law reflects various lobbying efforts you never heard of. That's why you need review by a tax professional who keeps up with the latest publications and tax court rulings.

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