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A broad coalition of groups and individuals supporting action on section 179 expensing levels and a host of other expiring tax provisions – named together as "tax extenders" – before the end of the year said Tuesday that without a resolution on the extenders, the American business climate will suffer.
In a conference call hosted by the National Association of Manufacturers, the organization's Vice President of Tax and Domestic Policy Dorothy Coleman said the key message is getting Congress to act on extenders as quickly as possible.
"These provisions impact a wide swath of the U.S. economy and if they are not acted on, they are going to result in tax increases … I know that's not what we need at this point," Coleman said.
Many farmers looking to make machinery or technology purchases in 2014 may defer those purchases into 2015 as Congress has not communicated its plans on section 179, said Mike Friemel, who farms 15,000 acres of wheat, corn, cotton and milo near Groom, Texas.
The section 179 provision in previous tax years has allowed farm businesses to take the full depreciation deduction of an item that meets certain specifications – in many cases machinery – in the current tax year, with a maximum deduction of $500,000 and a phase-out threshold of $2 million.
That deduction level, however, has fallen to $25,000 with a $200,000 phase-out for 2014, and will remain that way unless Congress acts on tax reform or a "tax extenders" package before the end of the year.
Friemel notes the uncertainty of whether previous section 179 expensing levels will return has a big impact on his business.
"Decisions to invest in my business are made in part on how quickly the cost of new equipment can be recovered," Friemel explained. "We are reluctant to invest capital in new equipment, buildings and facilities without knowing how the new assets will be treated for tax purposes."
Friemel said though he was forced to make tractor purchases in 2014 to keep up with changing technology, many of his neighbors have chosen to wait – constricting cash flow in rural communities.
"Section 179 needs to be reinstated as soon as possible," he said. "Congress should act immediately to get the ag economy and rural communities moving once again."
Into the New Year?
On Friday, the American Soybean Association said the tax extenders package is among a handful of items that are expected to be considered during the lame duck.
The group is advocating for extension of the $1 per gallon biodiesel tax credit; restoration of the maximum amount of expensing under Section 179 to $500,000; and reinstatement of the expired 50% bonus depreciation for the purchase of new capital assets.
Despite the optimism, Congressional negotiations are in the "preliminary" stages, House and Senate sources told The Hill last week. There has been limited discussion on a timeline for considering the extenders.
Another hurdle may be the cost of the tax extenders. According to the Congressional Budget Office, renewing all of the breaks that expired Dec. 31, 2013, for one year would cost about $54 billion in total, ASA said.
A two-year proposal, like the one offered in the Senate covering 51 breaks, would cost $84.1 billion over 10 years.
Some legislators also favor long-term tax reform in 2015 with a new set of Congress members, rather than approval of "extenders." Coleman, however, said waiting until 2015 could create more trouble.
"Pushing this into next year does create a whole host of problems. I think certainly the IRS has been pretty up front in talking about the administrative burden but beyond that, it affects financial recording, charitable organizations lose the critical December holiday season, individuals in non-income tax states … lose their ability to deduct their state sales tax from federal taxes," she explained.
"When the new Congress convenes in January, we think they should be focused on tax reform, not fixing a problem that's left over from the previous year."
View the group's full letter and list of signatories on the National Association of Manufacturers' website.
Interested in more section 179 background? Here's a recap of the year's Farm Progress coverage on section 179 and bonus depreciation, plus a few section 179 resources for agricultural producers.
Bye Bye Hefty Write-off? (January, 2014)
Why You Should Care About Depreciation Deduction: Section 179 (March, 2014)
Section 179, Renewables Tax Extenders Approved in Senate Committee (April, 2014)
House Passes Tax Extenders Legislation (June, 2014)
Making the Case for Section 179 Tax Break (June, 2014)
Section 179 Tax Benefit May Not Return This Year (July, 2014)
Section 179 Expensing Extension Still Stalled in Senate (September, 2014)
Lame-Duck Congress Faces Section 179 Expensing Extension, Tax Extenders (November, 2014)
Congress Expected to Consider Section 179, Tax Extenders in Lame Duck (November, 2014)