Economic Stimulus Act Tax Provisions Provide Good Incentive for Late-Season Equipment Purchases

America was abuzz last spring with the promise of tax rebates of up to $600 for individuals and $1,200 for married couples after the Economic Stimulus Act of 2008 was passed by Congress in February.

Lost in the discussion, however, was the sizeable benefit it gives in the way of new equipment purchases.

The Act made changes to Section 179 of the Internal Revenue tax code, raising the limits on business deductions for the purchase - and lease - of new equipment.

The increased cap to the total amount written off is $250,000, with an increased limit to the total amount of the equipment purchased at $800,000, according to www.section179.org - a Web site dedicated to explaining the tax provision.

That means a business can deduct the full amount of the purchase price of equipment up to $250,000 in the 2008 tax year. The previous dollar limits were a $125,000 limit on the deduction and the total amount of equipment purchased could not exceed $500,000.

The deduction begins to phase out dollar for dollar after $800,000.

However, in 2008, businesses that exceed the $250,000 deduction limit can take a bonus depreciation of 50 percent on the amount that exceeds the limit. Then, they can also take normal depreciation on the rest.

“It's a good program,” said Cleve Buttars, Twin Falls, Idaho, owner of Agri-Service, a statewide farm implement dealer. “It's an incredible economic spur.”

High commodity prices made 2008 a good year in the ag sector - and that means a need for viable tax strategies, he said.

“We're seeing farmers coming in and doing tax buying,” he said.

The improved provisions in Section 179 provide a good incentive for late-season purchases, he said. The challenge will be supply, given the high demand of farm equipment this year.

“The incentives provided as part of this current Economic Stimulus Act can help you invest in new equipment with dollars that would otherwise be spent for taxes,” said Tim Biewer, director of marketing for CNH Capital, in a recent press release. “Encouraging this type of investment is a primary reason for the Act.”

Those in the know, call the 2008 provision “generous” and urge businesses to act now, as the provisions of Section 179 can change yearly and without notice. And they advise businesses not to overlook the lease opportunities as well, but add the deduction is only good on purchase or leases of new equipment.

“While new, more efficient equipment can help boost farm profitability anytime, ordering them for 2008 delivery can maximize profit retention, thanks to record-high 2008 bonus depreciation investment incentives in the federal tax code,” said Todd Stucke, vice president of marketing for AGCO Corporation.

www.Section179.org provides the following general example of how this year's incentives could apply.

“When your business buys certain pieces of equipment, it typically gets to write them off a little at a time through depreciation. In other words, if your company spends $50,000 on a vehicle, it gets to write off (say) $10,000 a year for five years (these numbers are only meant to give you an example.) Now, while it's true that this is better than no write off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it. In fact, if a business could write off the entire amount, they might add more equipment this year instead of waiting.”

Kevin Smallwood, director of marketing and program management for AGCO, said producers should check with their accountant.

“Every tax situation is different, and a tax accountant should be consulted to determine which method of depreciation is most advantageous,” he said. “For some operators, a lease may be the best option, while others will benefit from making the capital investment and depreciating the purchase.”