For certain property, farmers can choose to recover some or all the cost of the asset up to a certain limit in the year the property is placed into service. This election is known as a section 179 expense deduction. The section 179 expense deduction is taken instead of depreciating the asset over its useful life.
Following is an overview of the property that does and does not qualify for section 179 expense deduction.
What Property Qualifies for Section 179 Expense Deduction?
For property to qualify for the section 179 expense deduction, the property must meet all of the following requirements:
- It must be eligible property
- It must be acquired for business use
- It must have been purchased
Eligible property is any of the following depreciable property:
- Tangible personal property
- Other tangible property use as an integral part of manufacturing, production, or extraction; research of such property; or bulk storage of such property
- Single purpose agricultural or horticultural structures
- Storage facilities use in distribution of petroleum or petroleum products
Tangible Personal Property
Tangible personal property is any tangible property that is not real property. Tangible personal property includes:
- Machinery and equipment
- Property contained in or attached to a building, such as cleaners, feeders, office equipment, and tanks
- Gasoline storage tanks and pumps at service stations
- Livestock, including cattle, goats, hogs, horses, sheep and other fur-bearing animals.
Facilities Used for Bulk Storage
Bulk storage refers to the storage of a fungible commodity in a large quantity before it is used. An example includes grain bins.
Single Purpose Agricultural or Horticultural Structures
A single purpose agricultural structure is any building or structure designed to house livestock and its produce and the equipment needed to raise and feed the livestock. For example, a single purpose structure includes a structure used to breed chickens, breed hogs, or produce milk from dairy cattle.
A single purpose horticultural structure is a greenhouse used for the commercial production of plants or mushrooms.
A structure must be used only for the purpose that qualifies it. A structure that is of mixed use would be a nonqualifying structure. For example, a hog barn does is not section 179 property if it is also used to breed poultry. Likewise, a greenhouse only partially used for the sale of plants would not qualify as section 179 property.
Property Acquired for Purchase
To qualify for the section 179 expense deduction, the property must have been acquired through a purchase. For example, property acquired as a gift or as part of an inheritance does not qualify for the section 179 expense deduction. Likewise, property acquired from a relative is not considered to have been acquired by purchase.
What Property Does Not Qualify?
Land and improvements to land do not qualify as section 179 property. Improvements to land include bridges, docks, nonagricultural fences, paved parking areas, swimming pools, and wharves. However, agricultural fences and field drainage do qualify as section 179 property.
The following property is specifically excluded from being considered section 179 property, even if such property otherwise appears to qualify:
- Property you lease to others if you are a noncorporate lessor
- Property used primarily to provide lodging or in connection with the furnishing of such lodging
- Property used by a tax-exempt organization, unless such property is used in an unrelated taxable business
- Property used by government agencies or foreign entities
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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.