The Downside of Section 179

During the past several years, many farmers have used Section 179 to depreciate equipment purchases. With the downturn in commodity prices, there may be some negative consequences of Section 179. CliftonLarsonAllen Principle and Farm CPA Today blogger Paul Neiffer says they can be a ticking tax bomb.
Neiffer: “These farmers with low prices and maybe some pressure from the bank or perhaps they’ve lost some additional ground — they are now likely going to possibly have to sell some equipment. It’s got no cost basis for tax purposes. So this is going to result in them maybe having a gain of $500,000 or a $1 million. That is going to require them to sell some additional grain likely to pay for that tax and thats going to create some additional tax so they when they file the tax return next year to pay for the tax they will have sell some additional grain. So this sort of ends of being a compounding issue for the next several years.”
He continues with some possible options, if a producer has to sell equipment that has been depreciated.
Neiffer: “One of the options that farmers can look at if they are in a situation where they have to sell equipment that they took a Section 179 on; if they have another piece of equipment that they didn’t take a Section 179 on in that year they can actually file an amendment return and transfer that election from the equipment that they are selling this year over to the piece of equipment that they didn’t take Section 179 on. That can definitely help them in the current year so they won’t owe as much tax. That is something that has now become permanent. It allows the farmer to go back and make that adjustment if it works for them.”