In late December, Congress did its usual retroactive "extender" legislation, restoring about 50 beneficial tax provisions that had expired at the beginning of 2015. This year's act, however, made about 20 of those provisions permanent in the tax law, and rolled the others ahead at least through 2016. There were also several small tweaks made to many of these provisions, generally all beneficial to taxpayers. Here are changes of interest to ag producers.
SECTION 179 DEDUCTION
As expected, this first-year depreciation deduction was renewed for 2015 at the $500,000 level. As in the past, the deduction begins to phase out if the taxpayer's asset additions for the year exceed $2 million. The good news is the legislation has also made the $500,000 and $2 million limits permanent in the tax law, with annual indexing for inflation. Ag producers can count on a minimum of $500,000 of Sec. 179 allowance going forward.
50% BONUS DEPRECIATION
The annual extension of this provision has been questionable; its origin was to serve as an economic stimulator to a weak economy. But Congress has again provided certainty by locking 50% bonus depreciation into the law through 2017, followed by a two-year phase-down. It will be 40% bonus depreciation in 2018, 30% in 2019, with expiration as of Jan. 1, 2020. This deduction applies only to new property, not used assets, and all taxpayers qualify, regardless of the magnitude of asset additions. In agriculture, all new assets qualify, including depreciable real estate.
BONUS DEPRECIATION FOR FRUIT AND NUT PRODUCERS
Trees and vines bearing fruits and nuts generally require the growing costs to be capitalized, with the plant becoming depreciable and eligible for first-year depreciation deductions when it becomes productive. The legislation allows the taxpayer to elect bonus depreciation when the plant is planted or grafted, rather than later when it becomes productive. If bonus depreciation is claimed early under this special election, it may not be claimed for that same plant or tree later when placed in service. This election could be beneficial when 50% bonus begins to phase down.
CONTRIBUTIONS OF FOOD INVENTORY
In the past, the tax law allowed a deduction for food inventory intended for human consumption that's donated to a charity. But if the food inventory was raised by a cash-method producer and had a zero tax basis, the mechanics of the law didn't allow any deduction. Beginning in 2016, Congress has amended the law to allow an election that results in a charitable deduction of 50% of the fair market value of the food inventory, even though the inventory has little or no tax basis. This new opportunity will have application to those who grow products such as apples, onions, or potatoes, or perhaps vegetables for a farmers' market, and choose to donate product to food shelters or similar charities for use in their exempt purpose.
EDITOR'S NOTE: Andy Biebl is a CPA and tax principal with the firm of CliftonLarsonAllen LLP in Minneapolis with more than 40 years experience in ag taxation, including 30 years as a trainer for the American Institute of CPAs and other technical seminars. He writes a monthly column for our sister magazine, The Progressive Farmer. To pose questions for future tax columns, e-mail AskAndy@dtn.com.
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