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Yes! You Can Write Off That New Machine Shop (At Least 50%)

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February 12th, 2013

We got the following question from a reader:

“I built a new farm workshop in 2012, can i take 1/2 of the cost off and depreciate the rest over time? I read something regarding bonus depreciation on workshops and was wondering if this qualifies?”

Bonus depreciation was placed into the tax laws as a result of the 9/11 attacks.  It was designed to provide stimulus to the economy and has allowed up to 100% bonus depreciation on any new assets with a tax life of 20 years or less and you are allowed to deduct that percentage immediately.  Unlike Section 179, there is no income limit, however, it must be new equipment or property.

For most real estate investors, bonus depreciation is not allowed since the tax life is either 27.5 or 39 years.  However, all farm buildings including machine sheds, barns, hay storage, etc. have a 20 year life, therefore, they qualify for bonus depreciation.  If you are building a new machine shed this year, it must be finished and in service by December 31, 2013 to qualify for the 50% bonus depreciation.  The remaining 50% is depreciated over 20 years.

As an example, assume our farmer builds a new workshop for $250,000.  He can immediately deduct 50% of this or $125,000.  The depreciation deduction on the remaining $125,000 is 3.75% or $4,688 for a total deduction of $129,688.  Without bonus depreciation, the farmer would only have a $9,375 depreciation deduction in 2013.

Paul Neiffer, CPA

 

Paul Neiffer

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a partner with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives combine each summer for his cousins and that is what he considers a vacation. Leave a comment for Paul. If you would like to leave a comment for Paul, follow the link above, however, please make sure to include your email address so that he can reply to your comment (your email address will not automatically show up).

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2 Comments

  • February 23, 2013 at 4:07 am

    Kim

    Paul, can you depreciate farm equipment above and beyond your farm income? This would be an offset to other capital gains revenue from royalty received.

  • February 24, 2013 at 10:34 am

    Paul Neiffer

    Yes, there is no limit on how big of a loss that depreciation will create that can be offset against other income. This assumes that you are a material participant in your farming operation.

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