WASHINGTON, D.C. — Farms and other small businesses may receive a Christmas gift from Congress as the U.S. Senate takes up the House tax extenders bill passed last week. But some farm groups say extending the tax breaks for just one year is not long enough.
The House bill, H.R. 5771, extends prior Section 179 expensing and 50 percent bonus depreciation provisions for the 2014 tax year. "Countless farms and manufacturers in the Hoosier State and across the country use these tools to make important business building capital investments," Rep. Marlin Stutzman (R-Ind.) told his House colleagues.
The bill proceeds to the Senate, which is expected to approve the one-year Section 179 and bonus depreciation extension. Farm groups pushed hard for the two tax extenders, and American Farm Bureau President Bob Stallman welcomed the passage but wishes for more.
"We are glad to have these temporary extensions, but we know these issues will come up again," he said. "We still need a long-term solution so small businesses can have the certainty they need to plan for the future."
Extending tax breaks like the Section 179 and bonus depreciation gives up some future tax revenues, banking that business investment will create economic activity resulting in even more revenue. The Section 179 extension would reduce revenues by $1.434 billion and extending bonus depreciation would reduce revenues by $1.492 billion from 2015-24, according to the government’s Joint Committee on Taxation (JCT). Total revenue reduction from the entire House bill would be $44.7 billion over 10 years, according to the JCT.
Some tax reform groups argue that year-after-year renewal of tax extenders hides their true long-term cost to the country. "If the extenders in this bill were extended for the next 10 years, debt as a share of the economy would be 3 percentage points higher by 2024, an increase of $850 billion," stated an analysis from the Committee for a Responsible Federal Budget, a bipartisan group advocating tax reform.
Most farm groups, including the American Soybean Assoc. (ASA), seem to believe the long-term benefit of the House bill outweighs its costs. "While it remains only a stopgap measure, we hope that the Senate will take up and pass it quickly," said Ray Gaesser, ASA president.
He applauded the House’s extension of the $1 per gallon biodiesel tax credit, as well as Section 179 and bonus depreciation, in the extenders bill. "At that point, we urge both chambers to join together and tackle the work of extending these critical tax incentives for the long term," he said.
Section 179 allows a deduction up to $500,000 of the tax basis of certain business property or equipment – including farm machinery – the year the property was placed into service, according to the Iowa State University Center for Agricultural Law and Taxation (CALT). The 50 percent bonus depreciation allows an additional first-year tax deduction equal to 50 percent of qualifying new property.
Farms making applicable property purchases in 2014 could see some tax benefits if the two measures are also approved by the Senate. But even if the Senate approves the tax extensions this week, a run on new equipment is not likely.
"Remember that deductions are only allowed for property that is placed in service during the year in which the deduction is taken," advised a CALT update.
