Printable Page US Ag News   Return to Menu - Page 1 2 3 4 5 6
 
 
Taxlink                       02/20 05:53

   Looking at Changes to Depreciation

   The Tax Cuts and Jobs Act significantly changed how agribusiness looks at 
depreciation. Bonus deprecation was one of the few items in the new law that 
applies retroactively. Under the new law, annual depreciation limits on 
passenger autos also increase significantly.


By Rod Mauszycki
DTN Tax Columnist

   With Andy Biebl's retirement, I wanted to take a quick moment to introduce 
myself. My name is Rod Mauszycki. I'm a principal at CliftonLarsonAllen and my 
focus is on Agribusiness taxation. Although I have big shoes to fill, I hope 
you find my articles as insightful as Andy's were.

   **

   Today I'd like to discuss the changes to depreciation. As you may know, in 
2017 you could take up to $510,000 of Section 179 (subject to phase out) on new 
and used equipment, and 50% bonus depreciation on new equipment. The asset must 
be placed in service by the end of the tax year. 

   The Tax Cuts and Jobs Act significantly changed how agribusiness looks at 
depreciation. Starting with Section 179, the new legislation increased 
expensing limits to $1 million with the phase-out starting at 2.5 million. It 
also increased the property eligible for Section 179 to include property used 
predominantly to furnish lodging, roofs, HVAC, and fire/security systems. One 
benefit in using Section 179 is the ability to amend and revoke during the 
period open under the statute of limitations.  

   Bonus deprecation was one of the few items in the new law that applies 
retroactively. Bonus depreciation will increase to 100% for property acquired 
and placed into service after Sept. 27, 2017. Unlike before, bonus now applies 
to both new and used property. However, used property that was acquired from 
related parties or a decedent will not be eligible for bonus depreciation. 
Bonus will be phased out at 20% increments starting in 2023.

   Under the new law, annual depreciation limits on passenger autos increase 
significantly. The first year is $10,000, second year is $16,000, the third 
year is $9,600, and $5,760 thereafter until fully depreciated. However, if the 
auto weighs less than 6,000 pounds, the deduction is limited to the lesser of 
the amounts above or depreciation that would have been computed under normal 
depreciation. This may result in unforeseen consequences so the IRS has put in 
place a safe harbor. If the auto weighs more than 6,000 pounds, you can fully 
depreciate using bonus depreciation.  

   Farm depreciable lives have been shortened under the Act. Prior, farm 
equipment typically had a seven-year life. Under the Act, new farm equipment 
placed in service after Dec. 31, 2017 will have a five-year life. Used farm 
equipment will continue to have a seven-year life. In addition, 200% declining 
balance method becomes the default. However, for 15- or 20-year property or 
upon election, 150% declining balance is still available. 

   One interesting retirement planning technique that opens up due to the 
changes in depreciation is the expanded use of Charitable Remainder Trusts 
(CRT) upon retirement from farming. Using Section 179 limits the ability to 
contribute assets to a CRT without tax consequences. A farmer could use the 
expanded bonus depreciation, instead of Section 179 to avoid the adverse tax 
consequences. This could supersize their CRT and defer additional income for 
two to 20 years.

   **

   Editor's Note: Tax Columnist Rod Mauszycki is a CPA and tax partner with the 
accounting firm of CliftonLarsonAllen, in Minneapolis, Minnesota. Send 
questions to taxman@dtn.com


(CC/ES)

Copyright 2018 DTN/The Progressive Farmer. All rights reserved.

No other Daily email offers as much useful Ag information as DTN Snapshot – Sign up Free today!
 
 
Copyright DTN. All rights reserved. Disclaimer.
Powered By DTN