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Tax reform changes to depreciation deduction affect farmers’ bottom line

11/8/2018

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Tax Reform Changes to Depreciation Deduction Affect Farmers’ Bottom Line
IRS Tax Reform Tax Tip 2018-170

Last year’s Tax Cuts and Jobs Act made changes to how farmers and ranchers depreciate their farming business property.
 
Depreciation is an annual income tax deduction. It allows a taxpayer to recover the cost or other basis of certain property over the time that they use it. When figuring depreciation, taxpayers consider wear and tear, and deterioration of the property, as well as whether it’s now obsolete.
Here is information about how the tax law changes to depreciation affect farmers and their bottom line:

  • New farming equipment and machinery is five-year property. This means that for property placed in service after Dec. 31, 2017, the recovery period is shortened from seven to five years for machinery and equipment.
  • The shorter recovery period does not apply to grain bins, cotton ginning equipment, fences and other land improvements.
  • Used equipment remains seven-year property.
  • Property used in a farming business and placed in service after Dec. 31, 2017, is not required to use the 150-percent declining balance method. Farmers and ranchers must continue to use the 150-percent declining balance method for property that is 15 or 20 years old to which the straight-line method does not apply and for property that the taxpayer elects.
  • New and certain used equipment acquired and placed in service after September 27, 2017, qualifies for 100 percent first-year bonus depreciation for the tax year in which the property is placed in service.
  • A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. For taxable years beginning after 2018, these amounts of $1 million and $2.5 million will be adjusted for inflation.
  • The new law increases the bonus depreciation percentage from 50 percent to 100 percent for qualified property acquired and placed in service after Sept. 27, 2017. The bonus depreciation percentage for qualified property that a taxpayer acquired and placed in service before Sept. 28, 2017 remains at 50 percent. Special rules apply for longer production period property and certain aircraft.
  • The definition of property eligible for 100 percent bonus depreciation was expanded to include used qualified property acquired and placed in service after Sept. 27, 2017, if several factors are met.
  • Farming businesses that elect out of the interest deduction limit must use the alternative depreciation system to depreciate any property with a recovery period of 10 years or more. This is property such as single purpose agricultural or horticultural structures, trees or vines bearing fruit or nuts, farm buildings and certain land improvements. This provision applies starting in tax year 2018.
 
 
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928 N. Coast Highway | Oceanside, CA 92054
Tel 760-722-1534 
info@oceansidechamber.com
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  • Oceanside
    • About Oceanside >
      • History of Oceanside
      • Demographics
      • Arts and Culture
      • Education
      • Employment
      • Health Care
      • Religious Organizations
      • Local Government and Services
      • Retiring in Oceanside
      • Oceanside Maps
    • Visitor Information >
      • Beaches
      • Accommodations
      • Groups and Meeting
    • Things to Do >
      • Oceanside Events >
        • Downtown History Walks
        • Farmers Market
        • Sunset Market
      • Shopping >
        • Coupons
      • Dining
      • Surfing
      • Regional Attractions
    • Volunteer Opportunities
  • Business Directory
    • All Categories
    • Coupons
    • New Members
  • Media
    • Advancing Oceanside Podcast
    • Blog
    • Member News
    • E-Newsletter
    • Publications >
      • Advertising Your Business
      • Best of Oceanside Magazine
      • Annual Community Guide
      • Military Publications
  • Chamber
    • Membership >
      • Member Portal
      • Membership Packages
      • Application
      • Testimonials
    • Advocacy >
      • Chamber Political Action Committee
      • Public Policy Guidelines
      • The Advancing Oceanside Report
    • Our Work >
      • 2021 Annual Report
      • 2023 Strategic Priorities
      • Committees - Task Forces - Forums
      • Oceanside Young Professionals
    • Economic Recovery >
      • 2021 Small Business Grant Program
      • 2020 Shop Local Oceanside
      • 2020 North County Cares Program
    • Workforce Development >
      • SOCAL Workforce
    • Kindness
    • Oceanside Leadership Academy
    • Our Team >
      • Board of Directors
      • Chamber Staff
    • Privacy Policy
  • Events
    • Signature Chamber Events >
      • Armed Forces Day Operation Appreciation
      • Heroes of Oceanside and Camp Pendleton
      • Meet the City of Oceanside
      • North County Health Fair
      • Oceanside Senior Expo
      • Rising Star Student Program
    • Monthly Chamber Events
    • Oceanside Community Events
  • Resources
    • Community Resources
    • Local Business Resources
    • Military Resources