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Two new tax bills, passed in 2010, gave farmers healthy incentives for buying machinery and equipment. Both bills will expire at the end of this year, and industry experts now question whether Congress will extend the tax write-off incentives.
In 2010, two new tax bills gave farmers healthy incentives for buying machinery and equipment to help boost their operations’ efficiency and stimulate the rural economy. The Small Business Jobs Act of 2010 increased Section 179 tax deductions for either new or used farm machinery from $250,000 to $500,000 for both the 2010 and 2011 tax years. The 2010 Tax Relief/Job Creation Act created a 100% bonus depreciation allowance for new farm assets purchased after September 8, 2010, and before January 1, 2012.
Data from the Association of Equipment Manufacturers (AEM) show these new tax incentives are working to increase farm machinery retail sales. “Farm tractors and combines are the big sellers right now,” says Charlie O’Brien, AEM’s vice president of agricultural services. “From the end of May 2010 through end of May 2011, sales are up nearly 25% for 4-wd farm tractors and nearly 15% for self-propelled combines.”
In addition to recent tax deduction incentives, a healthy farm economy also is encouraging an escalation in farm equipment sales, O’Brien notes. “The economics of depreciation law, high commodity prices, higher net farm incomes and lower farm debt are all contributing factors driving key activity in the number of farm machines being sold and upgraded,” he says. “Clearly, there is also a huge benefit to those farmers who are considering a machinery purchase, if they can act soon in order to qualify for the deductions that are available.”
Still, Congress may or may not decide to extend the new, tax write-off incentives for farm equipment and machinery purchases beyond 2011, O’Brien points out. “In the Senate, there are already sponsors of a bill that would keep depreciation on farm machinery at current levels,” he says. “However, we all know the budget process is a difficult one today. So I think it will certainly be a fight to extend these depreciation levels beyond this year, as budget deficits continue to increase.”
Farmers like Scott McPheeters, Gothenburg, NE, say it would be a shame if Congress failed to extend the new farm machinery tax deduction write-offs beyond 2011. “Unequivocally, yes, it will negatively impact farm machinery sales if the new bonus and Section 179 tax deduction levels expire,” he says. “I think these are some of the best stimulus programs around; they really do incentivize people to go out and invest in new equipment.
“Speaking for myself, I’d much rather do the Section 179 deduction and depreciate equipment as I buy it, rather than depreciating it over long periods,” McPheeters adds. “For me, it’s really hard to look two to three years ahead of time to plan my machinery equipment needs and what my tax situation might look like that far down the road.”