Farmers who need new equipment should not wait until Congress increases the 2014 limit for Section 179 tax deductions, since it is unclear when this will happen.
Many people in the agribusiness industry are frustrated by Congress’s delay in increasing the 2014 limit for Section 179 tax deductions, which allow a business to deduct the full purchase price of qualified financed or leased equipment. This deduction is allowed for most farm asset purchases, with the exception of farm buildings such as a machine shop or barn.
I’ve heard from many farmers who are postponing purchasing any equipment until they see an increase in the limit for 2014.
Due to the American Taxpayer Relief Act of 2012 (ATRA), the Section 179 deduction limit in 2012 and 2013 increased to $500,000, but this expired at the end of 2013. Therefore, the 2014 limit reverted back to the original deduction amount of $25,000. Congress is expected to update this amount, but it is unclear when this will happen and how much the increase will be.
What are the odds?
Here is my guess on when Congress may update the 2014 Section 179 amounts:
- By Memorial Day: 10 billion to 1
- By Labor Day: 10 million to 1
- By the November mid-term elections: 500 to 1
- After December 15, 2014, and before January 1, 2015: 1 to 1
Based on the history of changes to Section 179, these odds may not be too far off. In 2012, the original deduction was $139,000. The extension of the increased Section 179 deduction was the subject of negotiations in Congress. The legislation was finally enacted on January 2, 2013, after year-end planning had been completed for calendar year taxpayers.
There is a mid-term election this year and any change to Section 179 will most likely be in conjunction with other major tax law changes. These almost always happen after the elections, so I am fairly confident that farmers and business owners will only have a few days to think about the actual Section 179 deduction amount before year-end. Unfortunately, this does not leave much time for planning.
The deduction amount may end up in the $150,000 range, which is based upon the 2006 Section 179 limit of $125,000, indexed for inflation. However, Congress continues to fund small business tax incentives, of which the Section 179 is the hallmark. In that respect, I would not be surprised if the $500,000 amount is continued.
This is just a guess though — nobody knows what the actual amount will be and when it will be updated.
If you need new equipment, I suggest you purchase it to fulfill the need. If you need the Section 179 deduction to finalize the purchase and do not need the equipment now, then you may want to wait until later in year when there might be more clarity.
How we can help
I suspect that the 2014 Section 179 expense deduction limits will not be known for several months — and remember, they may keep it at $25,000. Your tax advisor can help you decide the best time to purchase any farm equipment that qualifies for the deduction, taking into account other tax planning opportunities that may be available.