Assistant Professor
OSU Extension

With harvest finished, farmers are starting to purchase inputs for 2013 and to begin looking at minimizing their tax liability for 2012.  The following tax article is a summary of  taxes strategies and changes written by Chris Bruynis, Ross County AGNR Extension Educator.  Farmers and their tax accountants are fully aware of the strategies and tools available to them, especially if they are using a cash accounting method. Farmers have historically delayed the sale of crops into the next calendar year and purchased inputs for the next year’s crop. In the past several years there have also been IRS policies that encouraged investment in equipment and buildings. Section 179 and Bonus Depreciation are the most common ones used by farmers.

The Section 179 tax provision allows businesses to deduct the full amount of the purchase price of equipment (up to certain limits). It can be elected for either new or used equipment purchased in fiscal calendar year of the business. In 2012, the deduction amount is $139,000 but is slated to be reduced to $25,000 in 2013. Farmers can elect to use all or part of the deduction amount. An example would be that a farmer purchases new equipment for $100,000 and used equipment for $75,000 in 2012. They can deduct the $75,000 on the used equipment and $64,000 on the new equipment for a total of $139,000 using Section 179. The $36,000 remaining value of the new equipment would then be eligible for bonus depreciation or be placed on the regular depreciation schedule. Section 179 deductions are limited to the amount of net operating income generated by the farm and cannot be used to create a net operating loss.