Economic stimulus and ag -- What you need to know varies by location

Farm and ranch businesses across the United States have been granted greater expensing authority and another bonus depreciation for their businesses in addition to the standard rebates due to reach 130 million Americans this spring under the Econ...

Farm and ranch businesses across the United States have been granted greater expensing authority and another bonus depreciation for their businesses in addition to the standard rebates due to reach 130 million Americans this spring under the Economic Stimulus Act of 2008.

The act, designed to invigorate the U.S. economy, was passed by both Houses Feb. 7 and signed by President Bush Feb. 13. At the heart of the $152 billion package lie rebates, which will pay up to $600 to individuals and $1,200 to married couples. Congress also set aside nearly a third of the funding, $44.8 billion, to provide incentives for small businesses to invest in new equipment and create jobs, which also will, it is hoped, stimulate economic growth.

Section 179 expensing

Section 179 of the IRS Code allows qualifying businesses to deduct the cost of certain property, commonly known as "section 179 property," as an expense in the year it is put into service, instead of depreciating it over several years.

This includes machinery and equipment, furniture and fixtures, most storage facilities and single-purpose agricultural or horticultural structures.


Under ESA2008, the amount of deductible expensing nearly doubles, from $128,000 to $250,000, for section 179 property purchased in a tax year beginning in 2008. This is the highest amount ever.

Further, the threshold for section 179 property placed in service by the taxpayer during the tax year has been increased to $800,000 before the $250,000 expensing maximum is decreased.

Bonus Depreciation Allowance

ESA2008 allows taxpayers to depreciate 50 percent of the adjusted basis of certain qualified property during the year that it is placed in service. To qualify for this allowance, the property must be placed in service "after Dec. 31, 2007, but generally before Jan. 1, 2009," according to an IRS press release.

Property qualified under the Modified Accelerated Cost Recovery System with a depreciation period of 20 years or less qualifies for the allowance, as does water utility property, qualified leasehold property and off-the-shelf computer software.

The IRS is developing a new version of the depreciation and amortization form, 2007 Form 4562-FY, for fiscal year filers.

State participation

Some states will allow the bonus depreciation in their tax systems, but not all.


Most states' income tax codes are based on the federal code. Therefore tax cuts that reduce federal taxable income amounts also typically will reduce state taxable income amounts. The federal bonus depreciation allowance is an example of this. Many states will offer it, giving up millions of dollars in expected revenues, according to the Center on Budget and Policy Priorities.

States can, however, pass a statute to "decouple" their business depreciation rules from the section of the federal tax code that allows bonus depreciation, the center says. From 2001 through 2004, when similar bonus depreciation was in effect, more than 30 states -- either fully or partially -- decoupled from it.

n North Dakota tax code will honor the federal code, according to state Tax Commissioner Cory Fong.

"We would have to have the Legislature decouple us from" it, he says. "There's been no indication from the Legislature that there will be plans to decouple. The purpose is to stimulate the economy."

n Montana tax code also will automatically follow the federal code and honor the bonus allowance, says Cynthia Piearson, public information officer for the Montana Department of Revenue, noting that the state Legislature would have to act to block the federal tax code changes.

"It would take an act from the state Legislature to change it," she says.

n Minnesota lawmakers would have to change state law to adopt the bonus depreciation for 2008, according to Mike Teegardin, communications director at theMinnesota Department of Revenue. To his knowledge, there are no plans in the Legislature to do so.

n South Dakota has no state income tax and so is unaffected by the federal tax change.

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