According to Statista.com, in 2020:
- There were over 2 million farms in the U.S.
- The agriculture industry employs more than 960,000 workers.
- The average farm size was over 400 acres.
- All together, these farms cover 896 million acres of the nation.
Keeping these ag operations running is no small task, and our nation owes an incredible debt of gratitude to the men and women who work the land to make it all happen.
One of the ways the federal government has stepped in to help these and other business owners is the creation of Section 179. This portion of the IRS tax code allows small to medium-sized businesses to deduct the full purchase price of certain qualifying pieces of equipment and software from their annual taxes.
It has especially proven to be a gamechanger for agriculture operations who typically have to use extremely expensive equipment to get things done.
At CRS CPA, we work directly with farmers all across West Tennessee on a regular basis, and we know that the vehicles they use can be one of their biggest expenses. Fortunately, Section 179 lets them become one of their biggest tax deductions as well.
What Vehicles are Eligible for Section 179?
In the past, Section 179 has been jokingly called “The Hummer Loophole” because so many business owners were using it to effectively get “free” large SUVs by writing them off in the name of their company.
While the IRS has caught on to that particular scheme, Section 179 can still be a big benefit when it comes to purchasing large vehicles and especially farm equipment.
In order to determine if a vehicle is eligible for deduction under Section 179, you need to be able to demonstrate what percentage of use will be personal or professional. Because many common passenger vehicles can so easily be used 100% of the time for personal transportation, the IRS puts limits on how much they can be deducted. It all depends on the size of the vehicle and how it will be used.
Let’s find out what vehicles are eligible for Section 179!
If a vehicle used in a business more than 50% of the time has a GVWR (Gross Vehicle Weight Rating) less than 6,000 lbs, the deduction available under Section 179 may range anywhere between $5,580 and $11,160 in the first year.
These types of purchases might include a small car or a delivery van.
Smaller specialty vehicles like hearses, taxis, and cars used exclusively to transport people for hire are exceptions. Likewise, single cab pickups with full-size beds or light vans modified to have only cargo space behind the driver can often receive deductions above the amounts above.
Large, or “heavy”, SUVs, trucks, and vans qualify for larger Section 179 deductions. They also need to be used for business at least 50% of the time in order to qualify, though.
For instance, a large passenger SUV (like a Chevy Tahoe or Ford Expedition) may be deductible up to around $25,000. Vehicles that can be considered for deduction like this under Section 179 must have a GVWR above 6,000 lbs.
Vehicles and equipment that clearly have no intended use beyond their specific work environment qualify for full deduction under Section 179.
An example of this would be a farm tractor that can only be used in the field and would never be used for personal transportation. A backhoe or a tractor-trailer rig would also clearly not be usable as a personal vehicle, so the IRS allows 100% of the cost of the purchases to be applied.
And that’s where it gets good for the farmers!
How Section 179 Benefits Farmers
Imagine that you are one of the 2 million farmers needing to work your U.S.-average 400 acres. You really need to purchase a new tractor, but the price tag on anything that would remotely handle the demands of your farm is astronomical.
A tractor with 100+ horsepower can easily cost anywhere from $80,000 – $200,000 (or more!). And that’s before attachments!
There aren’t many farmers (or anyone else) with that kind of money lying around.
For the sake of this illustration, let’s assume you bite the bullet and get the $200,000 tractor. Applying Section 179 to the entire $200,000 purchase, you would realize a tax savings of $70,000. That brings the actual effective cost of your tractor down to $130,000.
(A handy website on this topic, Section179.org, has a great little calculator that will quickly show you how much you can save on equipment you plan to purchase for your farm business this year.)
Section 179 Is for More Than Tractors, Though!
Ag operations can apply Section 179 to a lot more than the vehicles they drive and the equipment they use in the field. The IRS allows the software they use, many of the structures necessary for managing the farm, and even some livestock to be deducted through Section 179!
Maximize Your Deductions
To take full advantage of Section 179 (and it’s constantly changing requirements and regulations), it’s important to make sure you partner with an experienced tax professional who not only knows the U.S. Tax Code but understands farming as well.
Any CPA can file taxes, but if you run a farming or ag operation with lots of expensive equipment and property on the line…you should expect more from your CPA.
CRS CPA has been helping hardworking farmers navigate complicated tax situations for over 40 years. Our CPAs are experts at knowing exactly what deductions can be applied in order to legally and ethically save you a lot of money.
Our Farm & Ag Services have been helping farmers for decades! Before you go shopping for that next big farm equipment purchase, call one of our tax professionals who can guide you through up-to-date information on how you can make the most of your hard-earned money.