tax help with tractor purchase

[MESSMAKER]

I am considering a tractor purchase. I have some work coming my way in the future if all goes well. I was hoping it would be another 18 months but it looks like sooner. I am trying to keep the total cost low during the first year or so. Does this make sense.I am making the #s below easy to work with.
I buy a tractor for $10000. I put $2500 down. I set it up on payments of $200 per month. That would be 6 pmts @ $200=$1200 for this year. I take a $10000 depreciation (schedule 179) which would save me about $2500 at tax time. Does that make my cost for the tractor in 2009= $1200 or am I missing something? I realize that I will have no depreciation on the machine left.

 

[ccsial]

Your $2500 savings in tax wipes out the down payment and the only cost you have is the 6 payments of $1,200. Sounds right.

Don't forget sales tax if you buy from a dealer and be sure you can write it off in only one year. Some things are on a 2 or 3 year depreciation schedule.

 

[Punk]

You can go by your local Co-op and get a form to become Ag exempt on your sales tax. One page to fill out. Send, or fax it in.

 

[AndyMA]

You can go by your local Co-op and get a form to become Ag exempt on your sales tax. One page to fill out. Send, or fax it in.

Depends on what state you live in, In Conn items purchased are sales tax exempt only if exclusively used in agricultural production AND you have a Ag tax exemption certificate. To get the certificate you need to file a form showing that you had $2500 worth of Ag income in the previous year. I believe you need to refile each year.

I will go on a limb here buy I would say the vast majority of guys on this site who claim farm status to not pay sales tax would not stand up to an audit.

Andy

 

[carpenter383]

Does the 179 deduction save someone more money than yearly depreciation?

 

[Soundguy]

Depends on what state you live in, In Conn items purchased are sales tax exempt only if exclusively used in agricultural production AND you have a Ag tax exemption certificate. To get the certificate you need to file a form showing that you had $2500 worth of Ag income in the previous year. I believe you need to refile each year.

I will go on a limb here buy I would say the vast majority of guys on this site who claim farm status to not pay sales tax would not stand up to an audit.

Andy

yep.. state laws differ. her ein florida. on equipment purchase.. ag tax rate is still something like 2.5%.. got to fill out a form.. etc..

soundguy

 

[piller]

I'm not an accountant, I suggest that you discuss with a CPA, but here goes...

Sales tax: I meet state requirements to qualify for tax exempt status so I paid no sales tax on the tractor I purchased in 2008. Look into that option.

Depreciation: Schedule 179 depreciation allows you to fully depreciate unit in first year. If you sell unit before a certain time (7 years?) you might have to recapture some of that depreciation. Your example was for a 25% federal tax rate ($10,000 tractor, full depreciation, 25% rate, benefit is $2500). If your actual federal tax rate is 10% then the schedule 179 benefit would be $1000, not $2500.

You mentioned monthly payments of $200 in your example, so for one year (12 months) your total payments would be $2400, not $1200.

After purchasing a tractor there will be maintenance and operating costs that may be tax deductible depending on your situation.

I bought a new tractor in 2008 and I did not use the schedule 179 full depreciation. I went with the standard 7 year depreciation schedule which should work out better for me because my current tax rate is fairly low and I expect my taxes to increase in the next few years.

 

[Punk]

Depends on what state you live in, In Conn items purchased are sales tax exempt only if exclusively used in agricultural production AND you have a Ag tax exemption certificate. To get the certificate you need to file a form showing that you had $2500 worth of Ag income in the previous year. I believe you need to refile each year.

I will go on a limb here buy I would say the vast majority of guys on this site who claim farm status to not pay sales tax would not stand up to an audit.

Andy

You make a good point here, but I wasn't suggesting he lie on the form. If he states the truth, and they approve, I don't think I'd be concerned about an audit.

As far as the state you live in, you're exactly on the money. I just assumed he could check it out, and see what might fly.

 

[Harold_J]

I'm not an accountant, I suggest that you discuss with a CPA, but here goes...

Sales tax: I meet state requirements to qualify for tax exempt status so I paid no sales tax on the tractor I purchased in 2008. Look into that option.

Depreciation: Schedule 179 depreciation allows you to fully depreciate unit in first year. If you sell unit before a certain time (7 years?) you might have to recapture some of that depreciation. Your example was for a 25% federal tax rate ($10,000 tractor, full depreciation, 25% rate, benefit is $2500). If your actual federal tax rate is 10% then the schedule 179 benefit would be $1000, not $2500.

You mentioned monthly payments of $200 in your example, so for one year (12 months) your total payments would be $2400, not $1200.

After purchasing a tractor there will be maintenance and operating costs that may be tax deductible depending on your situation.

I bought a new tractor in 2008 and I did not use the schedule 179 full depreciation. I went with the standard 7 year depreciation schedule which should work out better for me because my current tax rate is fairly low and I expect my taxes to increase in the next few years.

His payments would be $1200 not $2400 because he said he's talking about the the 2009 expenses. It's already June, so he will probably have six payments.

Does the purchase date affect how much of a 179 amount he can take, or can you purchase right up to DEC 31?

You make a good point that you have to consider your future income situation when deciding how to depreciate, but it sounds like he's trying to minimize outlay at this time.
He can probably show a loss for a year or two and write it off against his other income sources, but eventually you have to show or profit in x out of y years or your venture may be considered a hobby.

 

[piller]

His payments would be $1200 not $2400 because he said he's talking about the the 2009 expenses. It's already June, so he will probably have six payments.

Does the purchase date affect how much of a 179 amount he can take, or can you purchase right up to DEC 31?

Oops, missed that, you are right on the 6 payments in 2009.
I don't think the purchase date affects the schedule 179 depreciation.

 

[duckhunt]

I never thought I would be discussing taxes on this site.

All the previous post are correct, especially Pillar, except for the 6 months payments.

Starting with the Sales tax, you will have to look into your individual state laws. In Louisiana, you can exempt out of State Sales Tax 4%, if you sign a form saying you file Schedule F on your federal income taxes. You can not get out of paying local sales tax.

Moving on the Federal Income, you can elect 179 and fully depreciate or partially depreciate your asset ONLY in the year purchased (date doesnt matter). Remember sec179 has an income limitation. You cant create a loss with accelerated depreciation. Also take note of the Sec179 carryover. May be a good tax planning tip.

I have to agree with AndyMa about the audit situation. Most will not stand up in an audit. Especially small Schedule F's with small income numbers or no income.

As far as the tax savings, everyones tax rate will be different depending on income amounts. You need to discuss this with your tax professional to understand all the limitations before you buy.

Hope this helps.

 

[MESSMAKER]

Thanks for the help. If I don't buy now, perhaps I could buy at Christmas with a 179 deduction and 90 days same same as cash and let the tax return cover the down pmt.

 

[Artful Dodger]

If you have an ag exempt card, in Tennessee, you don't pay sales tax. If it was approved, based on your schedule F you provided; there shouldn't be a problem.

 

[warhammer]

Curious as to what you think would stand up to an audit.
Would a piece of land that has been farmed commercially via lease for decades, has a farm number with the agriculture department, an ag exemption with the county and all current purchases can be demonstrated to live at and be used exclusively at the farm while taking over all production operations over the course of 2-3 years do it?

Depends on what state you live in, In Conn items purchased are sales tax exempt only if exclusively used in agricultural production AND you have a Ag tax exemption certificate. To get the certificate you need to file a form showing that you had $2500 worth of Ag income in the previous year. I believe you need to refile each year.

I will go on a limb here buy I would say the vast majority of guys on this site who claim farm status to not pay sales tax would not stand up to an audit.

Andy

 

[Punk]

Andy, Duckhunt,
If you're worried about an audit, don't apply for an exemption. If you're worried about an audit, don't write anything off on your taxes. If you're worried about a traffic ticket, then don't drive a car.

 

[duckhunt]

Punk,

I wasnt saying that I was worried about an audit, I was just pointing out several factors that should be considered before taking certain tax positions.
Thats all.

 

[impdaddy]

duck hunt. did you hunt ducks in Nebraska this past season?