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Sec. 179 on Farm Tile?


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#1 MJG CPA

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Posted 28 January 2008 - 04:31 PM

I have seen returns by other preparers claiming sec 179 on farm tile (land improvemenets).

I have a farm client who needs extra deductions this year & sec 179 would be helpful. Can you really take sec 179 on things like fences or farm tile? (I have always thought these didn't qualify.)

Does it matter if it's a farm rental (form 4835) vs sch F?

#2 RoyDaleOne

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Posted 28 January 2008 - 05:11 PM

Pub 225
WHAT PROPERTY DOES NOT QUALIFY?

LAND AND IMPROVEMENTS. Land and land improvements, such as buildings and
other permanent structures and their components, are real property, not
personal property and do not qualify as section 179 property. Land
improvements include nonagricultural fences, swimming pools, paved parking
areas, wharves, docks, bridges, and fences. However, agricultural fences
do qualify as section 179 property. Similarly, field drainage tile also
qualifies as section 179 property.


#3 MJG CPA

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Posted 28 January 2008 - 09:24 PM

Thank you, RoyDaleOne!!

#4 Booger

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Posted 29 January 2008 - 11:18 AM

Thank you, RoyDaleOne!!


MJG, I believe that if it's RENTAL property, NOTHING qualifies for Section 179.

Booger

#5 RoyDaleOne

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Posted 29 January 2008 - 12:18 PM

Pub 527

SECTION 179 DEDUCTION. You cannot claim the section 179 deduction for
property held to produce rental income. See chapter 2 of Publication 946.

Pub 946

PROPERTY USED FOR LODGING. Generally, you cannot claim a section 179
deduction for property used predominantly to furnish lodging or in
connection with the furnishing of lodging. However, this does not apply to
the following types of property.....

Sec 179

(d) DEFINITIONS AND SPECIAL RULES

(1) SECTION 179 PROPERTY

For purposes of this section, the term "section 179 property" means
property

(A) which is

(i) tangible property (to which section 168 applies), or

(ii) computer software (as defined in section 197(e)(3)(B ))
which is described in section 197(e)(3)(A)(i), to which
section 167 applies, and which is placed in service in a
taxable year beginning after 2002 and before 2011,

(B ) which is section 1245 property (as defined in section
1245(a)(3)), and

(C ) which is acquired by purchase for use in the active conduct
of a trade or business.

Such term shall not include any property described in section 50(B )
and shall not include air conditioning or heating units.

The following definitions apply for purposes of section 179 and sections
1.179-1 through 1.179-6:

(a) SECTION 179 PROPERTY. The term section 179 property means any tangible
property described in section 179(d)(1) that is acquired by purchase for
use in the active conduct of the taxpayer's trade or business (as
described in section 1.179-2(C )(6)). For taxable years beginning after
2002 and before 2008, the term section 179 property includes computer
software described in section 179(d)(1) that is placed in service by the
taxpayer in a taxable year beginning after 2002 and before 2008 and is
acquired by purchase for use in the active conduct of the taxpayer's trade
or business (as described in section 1.179-2(C )(6)). For purposes of this
paragraph (a), the term trade or business has the same meaning as in
section 162 and the regulations under section 162.

Section 50(B ) itself defines terms for various tax credits and deductions granted elsewhere in the Code.
It excludes certain kinds of property from these benefits,
including "property which is used predominantly to furnish lodging or in connection
with the furnishing of lodging." Sec. 50(B )(2).


I am not certain, however, the "rental" applies to property that provides lodging.
The rental of Sec 179 property if not lodging is not clear. However, I remember
Sec 38 property including rental cars, same definitions.

#6 Booger

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Posted 29 January 2008 - 12:24 PM

Pub 527

I am not certain, however, the "rental" applies to property that provides lodging.
The rental of Sec 179 property if not lodging is not clear. However, I remember
Sec 38 property including rental cars, same definitions.


RoydaleOne, Client who rents personal property as an active business activity was denied Section 179
treatment by the IRS on the equipment purchased for rent to third parties. Couldn't get the IRS to budge on this point.

Booger

#7 RoyDaleOne

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Posted 29 January 2008 - 12:58 PM

Booger:

Yes there are some limitations for "leased" property.

The IRS instructions to the agents put them in the position
you say. However, this does not make the IRS position
correct.

However, 179 provides:

(1) IN GENERAL. A lessor of section 179 property who is treated as
the owner of the property for Federal tax purposes will be entitled
to the section 179 expense deduction if the requirements of section
179 and the regulations thereunder are met. These requirements will
not be met if the lessor merely holds the property for the production
of income. For certain leases entered into prior to January 1, 1984,
the safe harbor provisions of section 168(f)(8) apply in determining
whether an agreement is treated as a lease for Federal tax purposes.

I offer my services if needed.......

#8 Booger

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Posted 29 January 2008 - 01:00 PM

Booger:

Yes there are some limitations for "leased" property.

The IRS instructions to the agents put them in the position
you say. However, this does not make the IRS position
correct.

However, 179 provides:

(1) IN GENERAL. A lessor of section 179 property who is treated as
the owner of the property for Federal tax purposes will be entitled
to the section 179 expense deduction if the requirements of section
179 and the regulations thereunder are met. These requirements will
not be met if the lessor merely holds the property for the production
of income. For certain leases entered into prior to January 1, 1984,
the safe harbor provisions of section 168(f)(8) apply in determining
whether an agreement is treated as a lease for Federal tax purposes.

I offer my services if needed.......

NO THANKS, I already handled it.

Booger

#9 Booger

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Posted 29 January 2008 - 01:02 PM

NO THANKS, I already handled it.

Booger


"These requirements will NOT be met if the lessor holds the property for lease"

Therfore, (Unfortunately) the IRS was correct.

Booger

#10 RoyDaleOne

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Posted 29 January 2008 - 01:36 PM

You can elect to expense part or all of the cost of section 179 property (defined on page 1) that you placed in service during the tax year and used predominantly (more than 50%) in your trade or business.

However, for taxpayers other than a corporation, this election does not apply to any section 179 property you purchased and leased to others unless:

You manufactured or produced the property or

The term of the lease is less than 50% of the property's class life and, for the first 12 months after the property is transferred to the lessee, the deductions related to the property allowed to you as trade or business expenses (except rents and reimbursed amounts) are more than 15% of the rental income from the property.

Booger, I know you handled the problem and did a great job!!!

#11 Booger

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Posted 29 January 2008 - 01:44 PM

You can elect to expense part or all of the cost of section 179 property (defined on page 1) that you placed in service during the tax year and used predominantly (more than 50%) in your trade or business.

However, for taxpayers other than a corporation, this election does not apply to any section 179 property you purchased and leased to others unless:

You manufactured or produced the property or

The term of the lease is less than 50% of the property's class life and, for the first 12 months after the property is transferred to the lessee, the deductions related to the property allowed to you as trade or business expenses (except rents and reimbursed amounts) are more than 15% of the rental income from the property.


A. Didn't manufacture/produce the property; AND
B. The term of the lease(s) was MORE than 50% of the property's class life.

I'm DONE with this topic.

Booger

#12 MJG CPA

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Posted 29 January 2008 - 02:15 PM

Thank you for your responses. I think my farm rental client probably does not qualify for sec 179 under the rules as I read them, but am still researching - will let you know if I come to a different conclusion.

#13 RoyDaleOne

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Posted 29 January 2008 - 02:54 PM

http://www.taxalmana...pense_Deduction

For MJG CPA From RDC CPA check oy this discussion.

#14 Booger

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Posted 29 January 2008 - 03:18 PM

http://www.taxalmana...pense_Deduction

For MJG CPA From RDC CPA check oy this discussion.


Roy, I guess I DO HAVE one more comment on this issue. First, I looked at the site you referred MJG CPA to.
Gee, it would be NICE to have the time to theorize about Section 179's applicability to rental property, but
you know as well as I do that client's complain too much already about our fees....and I'm not about to waste
my personal time doing $$$ worth of research when the savings to the client are less.

The real world tells us that if it takes $100 to save $50, you don't do it.

Booger, CPA

#15 RoyDaleOne

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Posted 29 January 2008 - 03:20 PM

I totally agree Booger!!

#16 mcb39

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Posted 29 January 2008 - 08:36 PM

Pub 225
WHAT PROPERTY DOES NOT QUALIFY?

LAND AND IMPROVEMENTS. Land and land improvements, such as buildings and
other permanent structures and their components, are real property, not
personal property and do not qualify as section 179 property. Land
improvements include nonagricultural fences, swimming pools, paved parking
areas, wharves, docks, bridges, and fences. However, agricultural fences
do qualify as section 179 property. Similarly, field drainage tile also
qualifies as section 179 property.


I had a new client last year who brought in a return prepared by her soon to be divorced husband's accountant. The prior year, he had expensed a BARN ROOF to the tune of $8000. Unfortunately, she had filed a joint return with him and did not understand any of the workings of his "business". Her Attorney agreed with me that this was not allowed, but did not want to jeopardize her yet as this divorce is still in litigation. According to my research at the time, any building or part thereof cannot be expensed as 179 property.

#17 kcjenkins

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Posted 29 January 2008 - 09:37 PM

No, it can not be §179d, but depending on the facts and circumstances, it might be expensed as a repair. The dollar amount is not the deciding factor, it's whether it is a repair or a full replacement. Without knowing the details, you have no way of knowing whether it was wrong or correct.

#18 MJG CPA

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Posted 02 February 2008 - 03:14 PM

No, it can not be §179d, but depending on the facts and circumstances, it might be expensed as a repair. The dollar amount is not the deciding factor, it's whether it is a repair or a full replacement. Without knowing the details, you have no way of knowing whether it was wrong or correct.

YES-Sec 179 on Farm Tile


I called IRS with this question, which they wrote up and submitted for a call-back answer. I thought, yeah, right, I'll never hear back, but they did call back today.

The IRS agent surprised me by saying the farm tile IS available for sec 179 deduction on form 4835 because the taxpayer participates actively and receives crop shares as opposed to cash rent. I guess the distinguishing factor is that in a year with a complete crop failure, there would be NO rent. If this were a sch E activity, then no sec 179.

The following is an excerpt I received from the IRS agent via e-mail:

"The definition of qualifying property under Internal Revenue Code (IRC) 179 that includes field drainage tiles is sourced principally in IRS Publication 225.



Based on my research of other resource documents (BNA, CCH, RIA, etc) the most original source for this inclusion is IRS Publication 225.

BNA also references IRC sections 168(i)(13), 179(d)(1), and 1245(a)(3)."


I have not looked up these references yet.

#19 Lion EA

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Posted 02 February 2008 - 06:18 PM

I get crop shares AND cash rent. I've been putting the cash rent on E and the crop shares on 4835. Is that right? I also need drainage tiles. Can I 179? I live in CT; the IL farm was passed down from my grandfather.

#20 MJG CPA

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Posted 04 February 2008 - 11:27 AM

I get crop shares AND cash rent. I've been putting the cash rent on E and the crop shares on 4835. Is that right? I also need drainage tiles. Can I 179?


I don't think so. The ability to take sec 179 on a farm rental was contingent upon operating the farm on shares only, exposing that person to risk of loss (ie, no crops, no income). A person who also receives cash rent does not have this exposure, so can't take 179. My interpretation, anyway.




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