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Congress extends Section 179

FARGO, N.D. -- The U.S. House on Dec. 3 passed a package of $42 billion in tax incentives, including Section 179, and the Senate passed it on Dec. 16. President Barack Obama was expected to sign it.

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To qualify for the 2014 tax year, purchases must be made by Dec. 31.

FARGO, N.D. -- The U.S. House on Dec. 3 passed a package of $42 billion in tax incentives, including Section 179, and the Senate passed it on Dec. 16. President Barack Obama was expected to sign it.

To qualify for the 2014 tax year, purchases must be made by Dec. 31.

The Section 179 provisions that had expired at the end of 2013 will be revived retroactively for 2014, allowing farmers to expense equipment and capital purchases up to $500,000, rather than a more modest $25,000. It applies to all business, but has been especially important, as farmers have reinvested in their agricultural equipment and farm infrastructure in the past several years. The package also includes a biodiesel tax credit.

The initial $500,000 applies to new and used equipment. Beyond the $500,000, a farmer who purchases new-only equipment can qualify for bonus depreciation for purchases up to $2 million.

Seeking permanence

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Sen. John Hoeven, R-N.D., was one of the senators pushing for the Tax Increase Prevention Act, and spoke on the floor of the Senate on Dec. 15 and 16 for the provision. The provisions expire -- again -- at the beginning of 2015. Hoeven vowed he would work to make the extensions permanent in the new Congress next year.

Richard Strom, executive vice president of the Minnesota-South Dakota Equipment Dealers Association, based in Owatonna, Minn., says the passage is a big deal for farmers.

"Dealers have been really anxious to see it happen, not necessarily for themselves, but for their customers," Strom says. "The farmers have been asking for it, and a lot of them have been waiting for buying decisions toward the end of the year for this thing to pass. One dealer told me he had a farmer whose tax man said he could buy a combine or -- if the bonus depreciation didn't come through -- he could possibly pre-pay some fertilizer and seed expenses."

Mike St. Onge, general manager at the Thief River Falls, Minn., Titan Machinery store and vice president of the two-state association, says the passage of the bill is good news.

"Most producers have been talking with their tax men about the chance that it would be approved," St. Onge says. "We've been hearing for the past six months it would be approved."

The fact the decision was made in the final two weeks of the year makes for a tight process of completing some sales, but that's not a new thing for equipment sellers, St. Onge says.

"All implement dealers will be in that same position, having discussions with producers that they wouldn't have had if it wouldn't have passed."

Off the sidelines

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"We haven't had nearly as much traffic as we typically would have for the year-end, because the provisions hadn't been in place," St. Onge says. "The crop prices, combined with the fact that (Section 179) wasn't in place, kept people on the sidelines, just thinking about it."

He says the provision will be especially important for livestock producers who have been seeing good income.

It isn't clear whether row crop farmers who have invested heavily in their operations in the past several years will continue to purchase equipment, even with the tax breaks, says one machinery seller who declined to be quoted by name.

Grain producers experienced lower commodity prices and variable production results in 2014, but many had income carryover from an excellent 2013 year. Some farmers who pre-marketed 2014 crops in 2013 also fared well for income which could be protected by the Section 179 extender.

The delayed passage of the bill came too late for some kinds of suppliers. Max Fuxa, in Red River Valley sales for Ellingson Cos., says Section 179 is very important for the tiling industry, but projects in 2014 have to be in service to qualify for that year. Some simply went ahead with projects based on other reasons, betting on the possibility it would qualify for the tax treatment, he says.

"If you can't write it off as a Section 179 depreciable expense, then you have to depreciate it over 15 years," Fuxa says. "It makes it more challenging when the government can't make a decision until 11 or 12 days before the end of the year. You can't do any planning."

He says Ellingson had a busy year, regardless, and it's difficult to sort out how much the delay of the Section 179 provision might have affected total sales, considering other factors such as lower commodity prices.

The Montana Farm Bureau thanked Democratic Montana Sens. Jon Tester and John Walsh for voting for the bill. MFB Director of National Affairs Nicole Rolf asked Obama to sign the bill quickly before the end of the year so farmers can take advantage of some of the provisions.

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"We are running out of time," Rolf says.

Claire Rauser, owner of Superior Inc. in Kindred, N.D., a major grain bin maker, says the extension will make a difference.

"To allow producers to make investments in their business, and therefore their communities, is much preferred to 'investing' in the government (through taxes) which produces nothing," Rauser says. "Having said that, many of the quotes we have out were waiting for this before purchasing. I would expect to close several major contracts before the new year."

Related Topics: CROPS
Mikkel Pates is an agricultural journalist, creating print, online and television stories for Agweek magazine and Agweek TV.
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