Let Uncle Sam Help Finance Grain Storage
Economic stimulus package sweetens tax provisions for new investments including grain bins
Compiled by staff
Published: Apr 1, 2008
Good yields and sharply higher crop prices push some farmers into higher income tax brackets. Investing in grain storage is smart marketing and smart tax management. You position to avoid moving grain at harvest when basis is typically weak. Some business assets are depreciable. So reinvesting in your farm business can trim your tax bite.
"The initial investment cost for erecting on-farm grain storage, including the cost of hired labor, can be depreciated as 7-year Modified Accelerated Cost Recovery System property for the farm income tax return," explains William Edwards, Iowa State University economist. "Bins and equipment are also eligible for Section 179 expensing, which means you can deduct some or all of their cost in the year they are placed in service."
The initial investment cost of condominium storage may also be depreciable, depending on the legal structure used.
Economic stimulus bill boosts benefits
"Section 179 is expanded to $250,000 for 2008," says Bushnell Illinois accountant Darrell Dunteman. "Section 179 would include grain bins, tiling, single purpose confinement buildings and conventional farm equipment. However, if you buy more than $750,000 of Section 179 assets it gets phased out."
Another point is 50% first year depreciation for new assets. "Where Section 179 applies to new or used, the 50% first year applies only to new and would also apply to farm buildings," explains Dunteman. "So, you could write of 50% off a new machine shed you put up in 2008."
Other fixed costs, such as property taxes and insurance, as well as all variable costs involving a cash outlay are deductible as ordinary expenses.
Manage when income is taxable
Delaying grain sales beyond the beginning of the tax year creates a tax deferment. Funds that would have been used to pay income tax on grain sales are available for use for an extra year.
"You can estimate the value of this deferral by multiplying the price of grain at harvest by the farm's marginal income tax rate, times the current interest rate on operating loans or savings deposits," says Edwards. "Adjusting the timing of grain sales between tax years is also a useful way to even out taxable income from one year to the next."
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Tagged: farm, Harvest, insurance, labor, legal
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