In a former life I evaluated Cost Proposals (time and materials bids) for compliance with the CFR's (Code of Federal Regulations). Determining allowable tax deductions by reading IRS regulations is approximately the same thing - you read the primary regulation then research how courts have interpreted the parts that are deliberately vague.
In this case, Google on
"Jobs and Growth Tax Relief Reconciliation Act of 2003"
to see IRS's publications, and also many interpretations by others. Here's one discussion that's relatively understandable:
http://www.hpj.com/archives/2003/dec03/Taxcutbilloffersnewwaystosa.CFM
Here's my excerpt from that article:
"The most widely advertised reduction, Barrett says, has been the increase in the limit for the Section 179 Expense Election, which allows businesses to expense up to $15,000 of current year capital purchases as long as their total capital purchases do not exceed $200,000.
While non-producers are most notably using this reduction to buy large sport utility vehicles (the unit has to weigh over 6,000 pounds to qualify), there's plenty of other reasons producers can use the cut.
The new law raised the expense limit to $100,000 and the total purchases limit to $400,000. This allows a large amount of variance in scenarios for tax planning this fall. [2003]
"For example, if you purchase a $125,000 tractor, you could elect to expense $100,000 and the remaining $25,000 would be subject to normal depreciation, so the total expense in the year of purchase would be $102,688 versus the $35,750 of normal depreciation that would have applied..."
"Unfortunately, many people still didn't see the income levels this year to make purchases big enough to take full advantage of the election...."
***end quote***
In summary if you have small-business farm income you can expense the entire depreciation of a new asset in the year of purchase subject to some limits. I think in this instance you must be the first user of a brand-new asset.
Now where things get interesting is when this rule is used to buy a large asset and allocate shares to unrelated purchasers of a proportional share of the asset. I think that is the structure underlying a classified ad in Ag Alert (California Farm Bureau) claiming you could attain free ownership of a share in a new airplane, using this or a prior IRS regulation. I think they wanted to sell shares in aircraft to qualifying small-business farmers who otherwise had no large expense to write off. Hence 'free' ownership of your aircraft share, after taxes.
Glad I'm retired and now only have to research this kind of stuff once a year at tax season, rather than daily!
