RHScattle
Active member
How exactly does depreciation of farm equip. work,..i.e. hay balers, tractors..? Thanks for any info!
equipment depreciation?
- Thread starter RHScattle
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RHScattle":13fdxodw said:
You need to ask that question to your CPA or whoever prepares your tax return. He or she would know your situation better than someone on a forum. Depreciation is a complicated subject, and there are various ways to handle it.
RHScattle
Active member
Definitely will do that 
Had a young person here with me who wanted to test the waters here on the forum and his question was equip. depreciation. Thanks
Had a young person here with me who wanted to test the waters here on the forum and his question was equip. depreciation. Thanks 
:welcome:
Please stick around.
Please stick around.
Douglas
Well-known member
The basics are that you have the option of expensing (up to a limit) equipment in the year of purchase or expensing it over several years. So a $10,000 equipment item would might be about $2,000 in expense each year over 5 years. The IRS allows you to expense more in the early years and less in the latter years but it still adds up to 10k over all. You only get a partial year in the year of purchase. And by expensing, i mean deducting from your income, writing off, etc. The IRS has established the useful life for this purpose to give you the number of years for different type of equipment and buildings. Most home tax software products like turbotax, walks you through it and you don't really need an expert just for this. I am a CPA, but not a tax expert. And yes i do stay at a holiday inn all the time.
A single use facility can be depreciated all at once. In other words a hay storage barn can be depreciated all at once. Some may disagree, but that is my interpretation of the tax law. If your going to wean calves in it when not storing hay then it quits being a single use facility. Machinary is a different story.
RHScattle
Active member
Thank yall for the information!
Ouachita
Well-known member
Bigfoot":1s63nql8 said:
This post caused me to think about my "facilities". I can't think of one I faciltiy that I have that is for single use only, except for the toilet. That even, might be considered dual purpose.
OklaBrangusBreeder
Well-known member
Well, I am a tax professional with a Masters Degree in Taxation. I hope I don't bore you with the details...
* IRS Revenue Procedure 87-56, paragraph 01.1 defines Farm Machinery and Equipment to have a 7 year class life for purposes of tax depreciation calculations.
* Internal Revenue Code Section 168 prescribes that the seven year life be applied using the Modified Accelerated Cost Recovery System which is a 200% Double Declining Balance method using a half year convention. That would mean a schedule as follows:
Year 1 - 14.29% of the cost of the asset is allowed as a deduction in year 1.
Year 2 - 24.49%
Year 3 - 17.49%
Year 4 - 12.49%
Year 5 - 8.93%
Year 6 - 8.92%
Year 7 - 8.93%
Year 8 - 4.46%
(Note that it takes 8 years to depreciate a 7 year asset since the rates above only allow a part year deduction in the year of acquistion.
* Internal Revenue Code Sec 168(j) provides shorter lives yet for those of us who live in areas know as "Indian Reservation Property". Since much of Oklahoma (including where my farm lies) meets the IRS definition of Indian Reservation Property, I get to use a 4-year depreciable life on my equipment purchases.
* Internal Revenue Code Sec 168(k) includes temporary provisions which allow rapid expensing of new equipment purchases under what is know as "bonus depreciation" rules. In 2011, you could take a 100% deduction of qualified new equipment purchases. In 2012, that bonus depreciation rate drops to 50% with the balance of the cost recoverable under the 168/168(j) provisions mentioned above.
* Internal Revenue Code Sec 179 also allows for current year expensing of certain equipment purchases. For 2011, that Section can apply on the deduction of a maximum of $500,000 of costs, subject to certain limitations. Starting in 2012, that $500,000 is reduced by $25,000 per year until the maximum deduction reaches $250,000.
Of course, the rules above are the law as it stands today. This area of taxation has been very fluid in recent years and can change depending on the laws passed by Congress.
Hope that answers your questions....
* IRS Revenue Procedure 87-56, paragraph 01.1 defines Farm Machinery and Equipment to have a 7 year class life for purposes of tax depreciation calculations.
* Internal Revenue Code Section 168 prescribes that the seven year life be applied using the Modified Accelerated Cost Recovery System which is a 200% Double Declining Balance method using a half year convention. That would mean a schedule as follows:
Year 1 - 14.29% of the cost of the asset is allowed as a deduction in year 1.
Year 2 - 24.49%
Year 3 - 17.49%
Year 4 - 12.49%
Year 5 - 8.93%
Year 6 - 8.92%
Year 7 - 8.93%
Year 8 - 4.46%
(Note that it takes 8 years to depreciate a 7 year asset since the rates above only allow a part year deduction in the year of acquistion.
* Internal Revenue Code Sec 168(j) provides shorter lives yet for those of us who live in areas know as "Indian Reservation Property". Since much of Oklahoma (including where my farm lies) meets the IRS definition of Indian Reservation Property, I get to use a 4-year depreciable life on my equipment purchases.
* Internal Revenue Code Sec 168(k) includes temporary provisions which allow rapid expensing of new equipment purchases under what is know as "bonus depreciation" rules. In 2011, you could take a 100% deduction of qualified new equipment purchases. In 2012, that bonus depreciation rate drops to 50% with the balance of the cost recoverable under the 168/168(j) provisions mentioned above.
* Internal Revenue Code Sec 179 also allows for current year expensing of certain equipment purchases. For 2011, that Section can apply on the deduction of a maximum of $500,000 of costs, subject to certain limitations. Starting in 2012, that $500,000 is reduced by $25,000 per year until the maximum deduction reaches $250,000.
Of course, the rules above are the law as it stands today. This area of taxation has been very fluid in recent years and can change depending on the laws passed by Congress.
Hope that answers your questions....
