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Jameshh1964
Senior Contributor

Tax question regarding deductible limitations

Some of our growers who hit a home run with their grain yields this year, asked to alter contracts to be paid nearly in full before year end. They are saying the tax laws changed and now allow an increased expensing or deductible for farm machinery purchases; therefore they bought new tractors etc and want the income to offset the purchases. If so, when did these tax laws change?
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34 Replies
KY_TOBDirt
Senior Contributor

Re: Tax question regarding deductible limitations

They extended section 179 for 2014, around the middle of Dec.
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Jameshh1964
Senior Contributor

Re: Tax question regarding deductible limitations

Thanks. I'll have to further acquaint myself with what that may mean going forward.
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minnisota
Veteran Contributor

Re: Tax question regarding deductible limitations

What are the tax ramification of using section 179 for my corporation say $250k for tractor use 179 on corporate taxes then turn around and lease that same tractor on my personal taxes to deduct full lease payment. Say I use a 10 yr lease at $25K I deduct the full $25k plus use the section 179 and deduct the full $250k on my corporate taxes.

 

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clayton58
Veteran Advisor

Re: Tax question regarding deductible limitations

Doesn't your corp have to declare the 25k lease pmt as income? And if I understand correctly the sec 179 can only offset income not be used to create a loss
minnisota
Veteran Contributor

Re: Tax question regarding deductible limitations

Not very hard to spend 25K to offset that income. So in 2012 I buy a 250k tractor use 179 when income was high , then when income  is low as it is now I lease that same tractor to myself i get to deduct the 25K on my personal taxes. I have part of my land and equipment in my c corp. And some acerage in personal business. I made 250k in 2012 I deduct the whole amout showing no income and now that my income this year is a lot lower I get to enjoy double deduction on same equipment. And I did not include any interest on the lease over the 10 yrs. and like majic. I don't pay any taxes and at the end of 10 yrs I own the equipment.Where is the pitfall I don't see any just more money in my pocket.

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Kay/NC
Honored Advisor

Re: Tax question regarding deductible limitations

You would have to actually pay the $25,000 leasing fee, which would them show up as income to the corp...no such thing as a free lunch!
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minnisota
Veteran Contributor

Re: Tax question regarding deductible limitations

The free lunch is the corporation buys the tractor. I lease it to myself with no interest on the lease and I use the deduction on my personal income tax. Since I don't own all the shares it's the other shareholders giving me a tractor to use on my personal ground. And a deduction to boot. And all the corp has to do is spend an extra 25k each year. Whats not free Oh the other shareholders aren't on farm folks anyway. When I need a new tractor I just do it again.  

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Kay/NC
Honored Advisor

Re: Tax question regarding deductible limitations

But, you still have to blow the " extra $25,000" per year. Money out us money out. If you can find away for someone else to pay for your equipment, fine. This one is still not free.
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OKdon
Senior Contributor

Re: Tax question regarding deductible limitations

I would assume that any leasing company would calculate a return on investment when they establish a lease rate. They aren't going to lease the tractor to you for $25k if is doesn't consider interest on the capital and depreciation of the equipment. Secondly you don't own the tracter at the end of ten years. The corporation does. Now, I'm not saying it is a bad idea but I don't think you have the real picture of how things work. If you own the tractor in the end, then the contract has to reflect the assumed residue value and the lease rate would have to reflect that as well.

 

If the deal sounds to good to be true, it probably IS to good to be true. I would recommend that you confer with a good CPA.