1. J C. Hobbs Associate Extension Specialist Agricultural Economics Dept.
June 19th Coffee Shop Tax Cuts and Jobs Act New Rules for Farm Vehicles, Machinery and Equipment  
J C. Hobbs
Associate Extension Specialist
Agricultural Economics Dept.

2. First–Year (Bonus) Depreciation
100% first-year depreciation (Jan 1, 2018 – Dec 31, 2022). Now allowed for used property.
80%
60%
40%
20%
Bonus deprec. sunsets after Dec. 31, 2026

3. Code Section 179 (Expensing)
Made permanent and indexed for inflation
For 2018, Section 179 allowed amount is $1 million with investment limit of $2.5 million
SUVs limited to $25,000
Full size crew cab pickups (<6,000 lb. GVWR) with a short box (less than 72 inches) are SUVs by definition
No change in carryover rules

4. Bonus vs Section 179 Bonus Depreciation
Must elect out of bonus depreciation and can elect out on certain classes of assets
Can create a farm loss and can offset W-2 wages as well as other income
Conversion to personal use does not require recapture of excess over regular MACRS depreciation

5. Bonus vs Section 179 Section 179
Must elect to use but can elect to use on only one specific asset or a group
Can’t create a farm loss but can be offset by W-2 wages
Conversion to personal use causes partial recapture (amount over regular deprec.)
Can use a percent of the asset’s cost to apply Section 179

6. New Farming and Machinery Depreciation Rules
Shorter Recovery Period: Machinery and Equipment placed into service after Dec. 31, 2017:
Cost recovery period is now 5 years for new machinery and equipment; used is still 7 years
Machinery, equipment, grain bins, fences, cotton ginning equipment, and land improvements are 7 year assets

7. New Farming and Machinery Depreciation Rules
Faster Write-Off: for some Farm Business Assets placed into service after Dec. 31, 2017:
NOW: 200% declining balance is to be used on 3-, 5-, 7- and 10-year property (all farm assets other than multi-purpose farm buildings, drainage facilities, water wells and land improvements)
150% declining balance on 15 and 20 year property (includes multi-purpose farm buildings, drainage facilities, water wells and land improvements)

8. Like-Kind Exchange Revisions I.R.C. Sec 1031
Like-Kind Exchanges are now LIMITED
Generally, for tax years beginning Jan. 1, 2018, like-kind exchange rules are apply only to real property (land and buildings) that is not held primarily for sale
Therefore, trades of vehicles, equipment and machinery will be a two-step transaction:
Sale of traded in item at trade allowance (FMV)
Purchase of new item (higher basis) can use Section 179 expense or Bonus depreciation to offset tax consequence of sale.

9. Example 1 – Old Law
Like kind exchange treatment was mandatory for a trade:
In 2017, Joe traded a tractor with a FMV of $70,000 with an adjusted basis of $0 for a new tractor with a fair market value of $150,000, plus $80,000 in cash.
Depreciation recapture was deferred and the basis in Joe’s replacement tractor is $80,000 ($0 basis in relinquished tractor plus $80,000 boot paid).
Joe could generally use IRC §179 to immediately expense the $80,000 of new basis. No income will be recognized in the transaction.

10. Example 2 – New Law
In 2018, Joe “trades” a tractor with a FMV of $70,000 and an adjusted basis of $0 plus $80,000 cash for a new tractor costing $150,000.
Joe must recognize $70,000 in depreciation recapture. He reports this as income.
The basis in his new tractor will be $150,000, the full purchase price of the tractor. Joe can likely use Section 179 to expense this amount in 2018 or he can use 100 percent bonus to capitalize and depreciate the full amount in 2018, since the depreciation amount fully offsets the income.

11. Questions