We had a reader ask the following question:

“My husband is a full time farmer and we are currently building a tool shed that will be done by the end of 2011. Will we be able to deduct the whole cost of the building or will it need to go on a depreciation schedule. Thanks for your time.”

A new qualified farm building placed in service before January 1, 2012 is allowed to be deducted in full using 100% bonus depreciation.  However, the asset must still be entered on a depreciation schedule and the resulting depreciation deduction flows through to form 4562.

The bottom line is that this deduction is still part of overall depreciation expense.

Just a reminder, a farmer only has two months left to either purchase any new equipment or construct a new farm building to take advantage of 100% bonus depreciation.  For both types of assets, the asset must be placed in service before January 1, 2012.  Simply purchasing the equipment and not taking delivery of the equipment will not work.

I have been teased by several readers that there appears to be no evidence that I operated a combine on my farm road trip.  Here is a photo of me operating a brand new John Deere Combine on the Hohenberger farmer in Illinois.  Now, there is probably no evidence that I performed all combine operations perfectly, but here is evidence I was “driving” the combine.  It is nice to be back home, but I already miss the combine.

One of the traps that we as tax advisors run into from time to time is sometimes forgetting the differences between federal and state rules for income taxation.  For example, my state of Washington does not have a state income tax, so most of the time I do not deal with state income taxes for the majority of my clients.  However, I think at my last count, I had clients in over 35 states, so I need to know how these differences affect those clients.

We have discussed numerous times the 100% bonus depreciation available to our farmers for qualified new equipment and farm buildings purchased or built in 2011.  However, there are only 12 states that actually follow the federal rules.  29 states do not allow any bonus depreciation at all.  Rather, the farmer adds back the federal deduction then depreciates over the normal life or takes Section 179 if allowed.

To help our farmers, I am reproducing a table here that shows how each state handles bonus depreciation.

The first line shows that states that follow the federal law and allow 100% and 50% bonus depreciation.  For some reason, Illinois allows 100% but not 50%.

The fourth line shows all of the states that do not allow either 100% or 50% bonus deprecation.  For these states, you must add back the bonus depreciation taken and then either take Section 179 if allowed and depreciate over the useful life.

The next three lines shows those states that have special rules including the fact that California does not follow the IRS on almost any depreciation rules.  The last line shows the states that do not have any income tax.

These rules are generally as of October, 2011 and each state has its own unique rules and interpretations, therefore, this is only a guide.  You must check with your tax advisor to see if these rules apply to your situation.

On Friday I got early and drove the last 300 miles to Port Allen, LA near Baton Rouge. I met up with Keith and Heath Morris who farm sugar cane in the area. We went out into the field to watch the sugar cane be cut. The harvester only cuts on row at a time. There are cutters on the bottom that cut the cane and a topper up top that lopsided off the leaves that have no sugar.

The sugar then goes through a series or rollers and cutters that get rid the remaining chaff and the stalk that contains the sugar is blown into the cart that is pulled beside the harvester. The carts then pass off the cane into a final cart that is pulled by a semi tractor to the mill. Each load is around 30 tons.

We then made a trip to the mill. About 40% of the loads are tested in a lab for sugar content and waste materials. The loads are then dumped. About half go directly into the mill while the remainder are stored on the ground to be converted at night.

The cane then is conveyed into the mill and is cut and pressed to break it down to more easily convert the sugar out. It goes through several processes until you end up with sugar very similar to brown sugar. It is then shipped directly to a sugar refinery for final processing.

On Saturday we met up with Heath again and went to the LSU – Auburn game. It was very interesting to watch 93,000 fans cheering for their team. Too bad the game was not very close.

Headed home on Monday and I hope my wife remembers what I look like. This has been a great trip, but I am ready to be home.

On Thursday, I got to spend the morning with John and Kurt Hohenberger near Leland, Illinois.  I met them this January at TEPAP and looked forward to getting out to see them.  They had just put in a new grain handling system at the home site and we were able to get out in the field and do a little combining.

They have a new John Deere with an 8 row head and John fairly quickly turned the machine over to me and I proceeded to give him some humor by missing a row for about a hundred feet.  It was a little humiliating to have to back up the combine to get it fixed, but for the first time out, I was not too bad.  There were some areas where the corn had blown over in the wind and I had to pick my row and guess on it most of the way.  With John’s help I did not do too bad.

The corn in that field was averaging about 215 a bushels and we saw many areas pushing 250 bushels.  It is always nice to cut high yield grain.

I had lunch with Todd Doehring of Centrec in Champaign, Illinois (actually Savoy which is a suburb).  I had met Todd at the annual Farm Financial Standards Council and it was good to catch up with him.

I then proceeded to drive another 550 miles south to Batesville, Mississippi where I spent the night and I am now headed to Baton Rouge to finally get some sugar cane harvesting in.

Yesterday I spent the day near Independence, Iowa with Chris Barron of Carson and Barrron Farms, Inc. Chris and his team of farmers farm about 7,000 acres along with a custom farming and seed sales business.

I will write a later blog on what his team is doing.

We spent most of the day moving grain around. These days farmers can spend more time on the movement of grain during harvest than actually harvesting the grain.

I finally got to ride on the combine for a couple of hours before I left for Illinois. The field I was in appeared to be yielding in the 180 range which was considered good since a couple months ago the expectations were in the 140 range.

As usual I had a great day and look forward to today. I will keep you posted.

I posted yesterday that as usual I brought the rain with me to Kansas City, however, I did get to ride the combine for one trip around the field before the rain came and stopped us.

Bean yields in the area seem to be pretty good compared to normal.  Many fields are  yielding in the high 50s and low 60s.  Corn yields are down from normal probably due to the high heat in August.

Today (Tuesday), I traveled up to Mason City, Iowa to meet up with David Olsen ofIntuitive Agritech Systems, Inc.  David provides management accounting services for farmers in the Midwest and his father, Uncle and cousin farm together about 50 miles northwest of Mason City.

I got to ride on an one year old John Deere 9870 for a couple hours today harvesting 180 bushel corn.  There is something therapeutic about watching 12 rows of corn come into a combine at almost 5 miles an hour and keep a grain cart and two semi trucks going.

I am off to Cedar Falls tonight and am looking forward to actually running the combine for several hours tomorrow before I head to Illinois.

It seems as usual when I come to Kansas City for harvest I always bring the rain with me. Today is no exception and it appears I will spend it driving around checking out the flood damage.

The goal is to get some combining in tomorrow up near Mason City, Iowa. I will keep you posted.

I have had a couple of readers tease me about using the term driving a combine.  They would normally use the term operate or run, but all I know is that I am looking forward to getting in the combine (and I think all four that I will be in are green for those who keep track of these details), putting the rotor and header in gear and getting out in the field and cutting some corn or beans.

I am old enough to remember when the combine I operated in the late 1970s had a cylinder and not a rotor.  Those were always very fun to plug up with wet green morning glory.

I am also looking forward to getting in that sugar cane harvester and cutting some sugar cane.  I will let you know what they call it down in Louisiana when I get there.

To enlighten me, any readers who want to share with me what they call “driving the combine”, if I get enough responses, I will let the readers know.

For this CPA, April 15 is not the wild deadline, it is October 15.  This is the time of year when it can be very difficult to get information from our taxpayers and it is always a wild scramble to the finish line.  I think the latest I have gotten into the office so far this week is 3:30 AM, but it is almost done.

To celebrate, I am headed off on my annual fall farm trip.  This year, I will leave Yakima Sunday morning and fly to Kansas City to stay a couple of days.  I will drive my partner’s combine on Monday.  On Tuesday, I head up to Mason City Iowa to visit with a farm consultant and the goal is to drive combine in the afternoon.  On Wednesday, I will stop by the Pro Farmer office in Cedar Falls, Iowa in the morning and then meet up with another farm consultant/farmer and drive that afternoon.

On Thursday, I start driving to Baton Rouge, Louisiana, where I plan on meeting one of my farm clients and the goal is to drive a sugar cane harvester for the first time.  On Friday, I meet up with my oldest son in New Orleans and two of his friends (I hope I can keep up with them) and on Saturday, we attend the LSU/Auburn game in Baton Rouge.  The original goal was to watch the New Orleans Saints / Indianapolis Colts game on Sunday, but since Peyton Manning is not playing, I think we are going to play golf.

As you can see, for this farm boy, the ultimate vacation is to drive three combines and a sugar cane harvester.  I will keep you updated on the trip since I will have my IPad with me and can post anytime I want.