Farm Building Tax Relief

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Farmers who are considering building a new barn or storage shed on their property in 2012 can take advantage of a tax relief benefit which can translate into significant savings.

For 2012, new agricultural buildings such as pole barns, equipment sheds, hay storage, and livestock facilities are eligible for “bonus depreciation” of up to 50 percent of the cost, regardless of net farm income. This benefit is included in the 2010 Tax Relief Act as an economic stimulus measure and applies to buildings purchased after Sept. 8, 2010, and put into service before Jan. 1, 2013, with a recovery period of 20 years or less.

To qualify, the building must have a depreciable life of 20 years or less, which fits virtually all farm assets. Normally a machine shed, or shop or other general purpose farm structure is a 20-year depreciable asset, and is not eligible for the Section 179 first-year expensing deduction. However, these assets do qualify for a 50% bonus depreciation if placed in service in 2012.

Basically, this means farmers can “write off” one-half of the entire cost of the building in the first year and recover the cost faster than ordinary depreciation allows. The deduction includes everything involved in construction, such as grading land, pouring a concrete pad, and doing electrical work.

Here’s an example: If a farm building cost $200,000 to construct and the farmer had net farm income of $100,000, $100,000 could be deducted under the bonus depreciation and the farm could claim a zero net operating profit. Every situation is different, so be sure to discuss with your tax professional before investing in a building.

Need a farm building? If you’re interested in this tax benefit, be sure to make plans to get your building constructed and put into use before the end of 2012, so as not to miss this opportunity.

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