How to maximize tax advantage on tractor purchase?

[kybota]

Hello all. I've been shopping for a tractor for several months and am nearing purchase. I am going to investigate tax ramifications further, but in researching it today I found a notice that indicated some accelarated depreciation opportunities go away September 11. If so, maybe I need to pull the trigger as this is only 10 days away. Due to this possible deadline for the additional first year depreciation that I was unaware of until about ten minutes ago, I'm in a bit of a bind to get info quick info.

Also, anyone have any general insights to maximize tax benefits for small farm operation (approx. 20 acres) now mostly in hay that a neighbor cuts? I purchased the farm last year and will be moving to it in about a month.

Thanks in advance. My tractor brand questions will be forthcoming. I have loved this forum since discovering it several weeks ago.

 

[aardvark]

I asked my tax accountant almost the same question. He told me that if I wanted to write it off on my taxes, I had to keep track of how many hours I used it for business, vs how many hours I used it for non business. I asked because I have an ebay hobby business, and also own a rental property I could use my tractor on. I could then depreciate it and write off the percentage of use for business vs all use. I thought it over, and that's alot of effort for a not so expensive tractor, so I'm just planning on using mine and enjoying it. I imagine your situation is different than mine since you seem to have a farm type business, and I do not.

 

[gugy]

Hello ,
I purchased my tractor out of state so I paid no tax.In my state there is no registration involved.

 

[denali]

If you go to the IRS web site you will find a very good summary of all the tax rules related to farming. The accelerated depreciation guidelines are explained in section 749 (I think). Provides a good explanation. The equipment must be used 51% of the time for business. It is deductible to the extent that it is used for business.

Also, if you use the equipment for less than the percentage claimed when initially written off, you will have to recalculate the depreciation and you might be subject to back taxes.

I am not an accountant. You must seek this information for yourself.

IRS publication related to farming

 

[jfdlaw]

Gugy

Even though the out of state dealer did not collect sales tax, you still owe it (unless you are exempt, such as a legitimate farmer). I wouldn't brag about not paying tax. Failure to report it and pay the tax is a violation of NY state law. Admitting to others that you broke the law is a silly thing to do.

If you do a search of this forum you will find threads going over this in exhausting detail.

Of course this is off the topic of this thread. Fixit was asking how best to take advantage of a legitimate income tax deduction for accelerating the depretiation of a piece of equipment he bought for his business. Not saving sales tax.

 

[Tomcat]

The additional 50% first year bonus depreciation is available for purchases up until December 31, 2004. The Section 179 deduction is also available for purchases up to $100.000. Both deductions must be pro-rated based on your legitimate business use.

 

[Shadow_River]

As I recall, the up to 50% deduction can be used the first year thus leaving the remaining 50% to be deducted over the next few years. The overall deduction is the same, it just depends on if it is benificial to take the first 50% in the first year. I think this IRS Section 179 only applies to New equipment.

 

[cowboydoc]

With 20 acres mostly in hay that your neighbor does the haying on you are going to have an awful hard time writing that tractor off as a legitimate farm expense much less trying to even prove that you have a legitimate farm business. What else do you do on the property besides the haying?

 

[kybota]

Hello again and thank you for all the info.

Yes, it was the depreciation I was interested in, since several months ago a tractor dealer mentioned this to me as an incentive to buy. On a West Virginia ag site, there was a bulletin from over a year ago about the accelarated depreciation only on purchases made by September 11, 2004. That is why I posted here, to see if anyone knew if that date was still a cutoff, as it left me little time to research it and still make the purchase date.

As for the purpose of my tractor, while the neighbor cuts the hay now, I plan to grow several acres of produce to be sold at the local farmers market. Also have been advised the easiest way to qualify for farm income/tax deductions on such a small area is to pasture a few calves each year, wich I have fencing and water available for that if I need to go that route.

Mostly, I just am in a hurry to find out if this deadline is in effect for the accelarated depreciation. I was going to wait until I move next month to purchase, but I need to consider this.

Also, I had been to the IRS for Schedule F instructions and other info, but not seen the Publication 225. Thank you so much for that link. I also spoke to three different county extension agents who were not at all helpful or interested in my small farm questions. I'm not lazy, just need quick info. Thank you again.

 

[kybota]

</font><font color="blue" class="small">( Gugy

If you do a search of this forum you will find threads going over this in exhausting detail.

Of course this is off the topic of this thread. )</font>
I looked at the various discussion forums and thought this BUYING forum would be appropriate since I am trying to factor the tax consequences into buying my new tractor, and did not see any other forums that would relate any better to it. I've only read the forum for a few weeks and hadn't seen any threads similar to this.

I think it is great so many folks like to share their insights here. Thank you again, as I think I've learned as much and been given more food for thought in two weeks here than in the months that I've been looking for a tractor.

If you can point me towards a good tax thread, I'd appreciate it.