Is there anyone out there familiar with whether or not a farmer can use the purchase of farm equipment against their bonus money using section 179 for year 2012? I realize this is a specialized question, and only a few my know the answer. Thanks in advance.
Lance, you can use Sect 179 for equipment purchases “against” your lease bonus money, but the ‘against’ is in a roundabout way. You would generally not claim the bonus money on your Sch f. you would claim it on your Schedule E. therefore, on the front of your 1040, the Sect 179 deduction on your Sch F would offset the income from the bonus money on your schedule E.
Remember farm loss may be limited related to your farm income.
Lance, it is my understanding that if you call the IRS and they provide you with information and then ... you use that information ... and that information that you obtained from the IRS is incorrect ... YOU are responsible for potential penalties and interest should you utilize that (erroneous) information that you directly obtained from the IRS.
The Government operates using its own brand of logic.
Lance, Did you go to Publication 946? This publication from the IRS describes depreciation including Section 179 in detail, I will add the link below. Consider this though. I sell equipment, several of my largest customers have decided not to use the bonus depreciation that is being thrown out there this year. Why, because they feel the tax rates may go up, and deductions may be cut. What this means is you are taking a big chunk of your depreciation this year which you could put on a 5 or 7 year MACRS. You are gambling that you are realizing more money in tax savings from your 2012 tax year than you will over the 5 or 7 years. The IRS will get less from you now, but in the long run I think in this environment they will get more from you. You are not getting extra depreciation, you are just taking more now than you normally could by depreciating it leaving less for later. If the tax rates go up and your tax deductions that you currently get for the farm or business are cut you may be in a situation in 2014 or 2015 where you wish you had that depreciation back. It is definately something you want to consult with a tax professional or CPA. I am assuming we are not talking about something small and insignificant, this is a big decision and can either realize you good returns like any other investment engine or a loss in realized income from tax deductions.
Equipment, thanks for the link. I in fact read the whole dang thing last night. It does not go into much if any detail about what can be depreciated against. I appreciate your concern about me "blowing all" of my depreciation in one year, and not having anything to write down in the 5-7 years to come. Fact of the matter is if/when corn goes back to $4 a bushel, I won't have to worry about right offs, as I'll be trying to make ends meet. LOL! I had a good year on paper with bonus money and $7 corn. I am going to shoot every barrel in my arsenal to reduce my 2012 tax liability, as I'm not worried about future tax consequences. I hope I have to worry about my tax liability in the future, as that means revenues are still good. The way it's looking with soybeans and corn right now, I'm not so sure...
You know your situation best, I was just giving you a little food for thought insight. Hope it all works out well for you. I think I would still consult an accountant on your original question. Mistakes at the IRS can cost a lot more than a consult. The IRS will accept it now and come back in 3 or 4 years and say "You should have known you couldn't do that" and charge you interest and penalties on top of the tax you should have paid. Just my 2 cents again, but a professional opinion is usually worth it.
Trust me, I have an accountant, and he'll have the final say. I'm hoping for the green light though. Thanks again for your thoughts....
You can only take Section 179 when you have earned income and you can not create a loss with Section 179. The lease bonus payment and any future royalties you receive are considered portfolio income, not earned income. Therefore, you are limited to taking 179 on your Schedule F as Aaron mentioned. With Section 179, you can only take your farm income down to zero. If you bought new equipment, then you could use the 50% bonus depreciation to generate a loss and help offset your lease bonus income.
Ok, well that is not the end of the world if I can only use the 50% bonus depreciation against the bonus money, as a large component of the equipment I purchased was new. Thanks for the heads up. Lance