February 2018

February 2018

Iowa Has a Section 179 Problem

The Tax Cuts and Jobs Act has significantly changed the tax landscape for agricultural producers. We’ve detailed a number of the changes, many of them positive, in prior articles. In light of the federal changes, Iowa must now decide how to respond. As Iowa lawmakers turn their attention to tax reform, we review several key IRC § 179 issues with great impact to Iowa agriculture and suggest they warrant attention, especially a glitch in the law that can deny owners of certain entities cost recovery altogether.

Section 179 has long been an important tool for farmers. It helps them with ever-difficult cash flow struggles, lowers their marginal effective tax rate, and eliminates burdensome recordkeeping requirements associated with depreciation. Between 2012 and 2016, farmers claimed 53% to 73% of the IRC § 179 claimed by Iowa taxpayers. Nearly half of the farmers who claimed IRC § 179 had less than $350,000 in gross cash farm income. They were the principal operators of their farms.

The “Difficulty”

Historically, Iowa has not coupled with federal bonus depreciation provisions, but has conformed to federal IRC § 179 provisions. Last year, in light of serious budget concerns, the Iowa Legislature decided not to couple with many federal tax extender provisions, including the increased IRC § 179 made permanent by the 2015 PATH Act. Consequently, during the 2017 filing season (2016 tax year), taxpayers and their preparers for the first time battled with a $500,000 federal IRC § 179 deduction and a corresponding $25,000 Iowa § 179 deduction. And, the federal threshold (or level at which the expense deduction begins to phase out), was $2,010,000, while the Iowa threshold remained at $200,000. This led some Iowa farmers to face significantly higher Iowa tax liability than federal tax liability.

Continue reading here.

Looking at Vehicle Depreciation and Expensing under the New Tax Law

The Tax Cuts and Jobs Act (TCJA) made significant changes impacting the depreciation and expensing of vehicles used in a trade or business. In this post, we review the current law.

2017 Limits for "Passenger Automobiles"

IRC §280F(a) imposes dollar limitations on the depreciation and  IRC § 179 expensing deductions that can be taken for passenger automobiles. This limitation is often referred to as the “luxury automobile depreciation limitation,” even though it applies to vehicles not commonly considered “luxury automobiles.” Passenger automobiles, by definition, weigh 6,000 pounds gross vehicle weight or less. Cars, trucks and vans falling within these weight limits are subject to the 280F limitation. SUVs are treated as trucks for the purpose of applying the limitation. The 280F limitation is indexed for inflation, and IRS has traditionally applied a different inflation adjustment for cars than for those vehicles on a truck chassis, including light-duty trucks and vans. Consequently, two tables have emerged for the IRC §280F(a) limitation. IRS Rev. Proc. 2017-29 set the 2017 limits as follows.

Continue reading here.

Iowa Court Agrees that Three Wind Turbines Not Authorized on Agricultural Land

The Iowa Court of Appeals recently found that Fayette County improperly granted permits to a wind energy group to build three wind turbines on agricultural land. This opinion leaves in effect a district court order that directed the group to remove the turbines.

A Fayette County couple granted easements to several wind development companies to construct three wind turbines on their farmland. The wind group applied to the Fayette County Board of Adjustment (Board) for special use permits to construct the turbines, and the Board denied the application.

The county administrator then requested a legal opinion from the county attorney, who determined that the wind turbines would qualify as “electrical transmission and regulating facilities,” so as to exempt them from the need for a special use permit. This opinion was based upon the attorney’s interpretation of the county’s zoning ordinance, which lists the “permitted uses” for agriculturally-zoned districts to include facilities such as airports, cemeteries, sewage treatment facilities, and “electrical and natural gas transmission and regulating facilities.”

Continue reading here.



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