Friday, December 18, 2009

Just in from Washington

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Minnick Co-sponsors Equipment Depreciation Bill

Washington—Idaho Congressman Walt Minnick co-sponsored legislation designed to help farmers cope with shrinking margins. The Agriculture Equipment Depreciation resolution extends legislation that amends the Internal Revenue Code to allow farm and ranch equipment to be depreciated over five years instead of seven years.

The provision better matches agriculture equipment depreciation period to actual equipment use patterns and financing terms.Farm Bureau supports H.R. 4186, legislation to continue the 5 year depreciation for farm business machinery and equipment for two additional years. Enacted as part of the Emergency Economic Stabilization Act of 2008, this important tax provision is set to expire at the end of this year.

"This resolution is an attempt to give some additional tax credits to people who are investing in their business and it basically extends the five year accelerated depreciation for business machinery and equipment which was temporary program that was due to expire this year,” said Rep. Minnick.

Depreciation is treated as a non-cash business expense that lowers reported income and increases cash on hand. Ideally, the allowed number of years to depreciate a piece of business machinery or equipment should match the period of debt service so that the tax benefits can be used to finance payments.

“The thought process,” said Minnick “is that farmers that are making money, to an extent they can keep more of it in the form of a tax shield and that’s good in these tough times, it gives them a little more tax flow. If they are having trouble with their bank it gives them a little more leeway in terms of what their statement looks like, and their ability to service loans.”

Agriculture is an equipment-heavy industry with nearly $100 billion of stock in use during any given year. The share of farm assets attributable to machinery and farm-use motor vehicles makes up 7 percent of total assets owned by farmers and ranchers.

“If they are not making money, they still have to carry forward and carry back provisions so you can use the depreciation that way, so it is not a radical change but an acknowledgement that people in agriculture can continue to do what they need to do in terms of keeping their outfits up to date, and buying equipment that will allow them to be more efficient and to get the benefit of favorable tax treatment and hopefully get back to better times,” said Congressman Minnick.

USDA's Farm Service Agency surveys show that, on average, farmers and ranchers finance business equipment and machinery for five years. Aligning depreciation and debt service increases farm income by $800 million in a typical year, helps farmers and ranchers cover their debt service and facilitates the replacement of worn-out machinery.

The Bill passed the House and now goes to the Senate for final approval sometime in January.

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