Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Thursday 06/12/14

Sec. 179 Depreciation in Limbo Again

Farm equipment sales have hit the skids this year, thanks largely to more modest farm income projections that could cut net revenues far below 2013 levels for crop producers. But uncertainty over the status of Sec. 179 depreciation rules for small business is compounding the problem. The House is scheduled to address the measure in the so-called tax extender bill June 12, but its future in the Senate remains uncertain.

Dozens of national organizations are advocating passage of H.R. 4457, America's Small Business Tax Relief Act of 2014, which will reduce the tax burden on small businesses by permanently extending Section 179 expensing. At a time when economic growth is stagnant, making certain tax policy permanent encourages businesses to grow, invest and hire, House Committee Chair Dave Camp (R-Mich.) argued in a prepared statement today.

The American Farm Bureau strongly supports passage and says the on-again, off-again expensing rules hamper good investment planning. “Farm Bureau believes that Congress should end its practice of extending important business tax provisions for one or two years at a time. This practice makes it very difficult for farmers and ranchers to plan and adds immense confusion and complexity to the tax code. Long-standing tax provisions, like Section 179 small business expensing, should be made permanent at the 2013 level of $500,000,” it said in a statement.

Even if the House approves a retroactive fix this week, the Senate has yet to vote on its version of the tax extender bill. In a phone interview with reporters this week, Sen. Charles Grassley (R-Iowa), a key member of the Senate Finance Committee, said he expects the Senate won't vote on the tax measure until after November's mid-term elections--a little late for business owners to make any significant capital purchases this tax year.

The Association of Equipment Manufacturers has also called on Congress to retroactively restore the Sec. 179 small business expensing level to $500,000 annually in 2014, as well as make legislation permanent and indexed to inflation. Without action, the maximum expense allowed for 2014 would revert to $25,000 and excess purchases would be subject to multi-year depreciation.

Starting in 2003, Congress steadily increased the amount of capital purchases that small business would expense in a single year rather than depreciate over an extended period. But each change led to on-again, off-again levels and risky economic choices for business owners.

AEM reported May sales of new 100+HP 2WD tractors had tumbled 19.3% compared to year earlier, and were running 8.5% below 2013 year-to-date, similar to sluggish 4WD sales. Self-propelled combines slid 16.1% in May and are running 9.7% below year-ago levels.

Ann Duignan, an agricultural equipment analyst with J.P. Morgan Chase, reports that this year's farm equipment trading activity "has decelerated, dealer used inventories are trending higher, and used equipment prices are softening. Dealers are scaling back the use of multi-unit discounts on new equipment, as demand for used equipment is falling and inventory levels are becoming a concern. "

Bottlenecks in combine resales remain the primary concern for dealers, Duignan writes in her June 10 research report. Strong crop prices in recent years drove traditional secondary buyers to purchase new equipment, so downstream demand for used combines has slowed.

Deere is offering special financing promotions hoping to jump start sales. For example, through July 31 John Deere Financial is offering 0% APR, 5-year fixed-rate loans and $2,000 cash back, or $7,000 cash bonus on new John Deere 6M, 6R, 6030 Series and 7030 small-frame tractors. This helps of course, but farmers could make better economic choices if they knew they could expense $25,000 of equipment in 2014 or $500,000. That's a big gulf.

Follow me on Twitter @MarciaZTaylor.

Posted at 9:58AM CDT 06/12/14 by Marcia Zarley Taylor
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