Dec 12

Coordinate your Section 179 Deduction with Bonus Depreciation

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With the large increase of Section 179 deduction for 2010 and 2011 to $500,000 and 50% bonus depreciation on new assets in 2010 and possibly 100% in 2011, it is now even more important for your tax planning to coordinate these two deductions.

Here are the important rules to remember:

  • Section 179 deduction is available on all new and used machinery (including single purpose ag structures such as a hog confinement facility),
  • Bonus depreciation is only available on NEW purchases with a life of 20 years or less (includes almost all new ag buildings),
  • Section 179 is taken first, bonus depreciation second, and then depreciation third,
  • Section 179 is based upon when your taxable year starts and bonus depreciation is based upon when the asset is placed in service (if calendar year, then no difference).

Therefore, here are the general rules that you want to follow:

  1. First, take Section 179 deduction on all of your used equipment.
  2. Second, take full Section 179 deduction on all assets with the longest life.  For example, if you have $100,000 of ten year property and $600,000 of 7 year property, take Section 179 on $100,000 of 10 year and $400,000 of 7 year property.
  3. Third, take your bonus depreciation on all of your NEW assets that qualify.
  4. Fourth, take normal depreciation on the remaining value.

If you are placing a large amount of equipment in service in the last quarter of the year, this may make you subject to mid-quarter depreciation which might limit your deduction for the year.  If this might apply, you may want to time your Section 179 deduction on your late in the year assets to maximize the overall depreciation expense for the year.

Categories: Farm Leadership, Farm Operations, Farm Taxes


6 Responses to “Coordinate your Section 179 Deduction with Bonus Depreciation”

  1. Roth & Company, P.C. Says:
    December 13th, 2010 at 7:01 am

    Section 179 or bonus depreciation?…

    Paul Neiffer has posted an excellent summary of how to think about choosing between Section 179 deductions and bonus depreciation:……

  2. Rhett Says:
    December 22nd, 2010 at 8:21 am

    The enhancement of Section 179 is going to be so helpful for not only me, but other fellow business owners in my area. Being able to deduct some of these expenses in full is so important for us! I read another good post on explaining the 179 and other various tax highlights so I thought I’d share. Thanks again!

  3. David McLachlan Says:
    August 29th, 2011 at 7:07 am

    We have 5 A near a small rual town in MO. There are about 70 Walnut trees on the place with several acres that my wife and I plan to truck farm to sell produce in the city. Can I take advantage of Section 179 to build a Ag building on the property?

    Thank you

    David McLachlan

  4. Paul Neiffer Says:
    August 30th, 2011 at 5:35 am

    You can take advantage of 100% bonus depreciation if you finish the building by the end of the year. Section 179 would not apply

  5. Small Business Wednesday – More On Sec. 179 and Bonus Depreciation | Home of Jason T. Dinesen, E.A. and The Dinesen Tax Times Says:
    December 14th, 2011 at 3:36 am

    [...] take normal depreciation on the remaining value. You can click here to find Paul’s full article. One other item to consider; the Section 179 deduction is limited [...]

  6. suresh Says:
    January 6th, 2012 at 3:45 am

    Hi, I am not able to determine that on particular property purchased in current year what can we select from normal depreciation,bonus depreciation, and sec 179 deduction?
    please give me some material through which i can understand it very well.
    please reply
    Thanks

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