As we have reported, the tax law passed late last year had very favorable tax treatment for the construction of new farm buildings. In that law, for any new farm buildings placed in service after September 8, 2010, and before January 1, 2012, a farmer would be able to write off 100% of this new construction cost in the year placed in service.
For example, if a farmer started to build a new machine shop in late 2010 and placed it in service in May, 2011, they could deduct 100% of this cost on the 2011 tax return. The first interpretation was that this 100% bonus depreciation would apply on any new building placed in service between these dates, but the IRS does not see it that way.
The IRS has thrown us a curve. In the IRS interpretation, both the construction must commence and be placed in service during these time periods. Therefore, if a farmer started the construction before September 9, 2010, they can only deduct 50% of the new building as bonus depreciation. The beginning of construction is defined, “as when physical work of a significant nature begins”.
