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Bonus Depreciation and farm buildings

February 14, 2011

A ~~victim~~ satisfied attendee of the new tax law webinar we did a few weeks ago asks:

Could you go through the 2011 depreciation scenario for a steel ag building being used for machinery, hay or livestock storing including bonus depreciation, if any?

Certainly! Bonus depreciation applies to new property "which has a recovery period of 20 years or less" (Sec. 168(k)(A)(I)(i)). The tax law depreciates farm buildings over a 20-year life. See Rev. Proc. 87-56. That means new farm buildings qualify for the current 100% bonus depreciation -- fully deductible when placed in service if "acquired" after September 8, 2010, if in service by the end of this year.

Flickr image courtesy SteelMaster Buildings under Creative Commons license

So Mr. Farmer decides he needs a new tractor shed. He signs the deal today and the shed is up and in service on August 1, 2011. He pays $200,000 for it. His taxable income is otherwise $125,000 for this year. After the bonus depreciation, he has a $75,000 or so net operating loss that he can carry back to get a refund of prior-year taxes (farmers qualify for a special five-year carryback provision).

What if the shed was under construction on September 8, 2010 and finished on September 30, 2010?

As long as the property was not built under a contract binding as of January 1, 2008, it should qualify for 100% bonus depreciation if placed in service after September 8, 2010 and before the end of 2011.

What if I bought land from my neighbor that had a shed on it?

Sorry, then it is not "new" property and no bonus depreciation is permitted.

Tags: bonus depreciation.Bush-era tax deal.