Tile/fencing/barns depreciation question

Anonymous-0 · Jan 6, 2011

Bought a farm last month. I have made an initial visit to an accountant. Need to go back, but want background information first. There is tiling, fencing, a couple old barns, and an eight-thousand bushel grain bin. I assume I can depreciate these assets? Right? How do you establish a value for depreciation? For tile, the accountant says calculate the footage and multiply by $1.70. What have you done with these types of assets on new land aquisitions? I assume the previous owner had written them off, maybe not. No records exist past the last four years. None of the above assets are currently listed on the prior owners depreciation schedule. Your ideas will get me started in the right direction. Thanks.

IaGary · Jan 6, 2011

One way is what are the barns ascessed at on the property taxes? What do you have them insured for?

Tile might be higher in your area but I just put in 2000 feet for $1.15 per foot. Last fence I put in was about $1.50 a foot.

scott mcintosh · Jan 6, 2011

Previous owners depreciation schedule has no part in your schedule,your accountant should know that.If he does not you better find another accountant who knows real estate.Purchase price is your number to work with.Scott

Anonymous-0 · Jan 6, 2011

The barn and corn crib are in a bad state of repair. Grain bin is very good. Quite a bit of tile in the last 10 years. I sort of thought $1.70 was too high myself for the tile. Lets say tile is $1.15 a foot and the tile averages 7 years old, surely a new owner wouldn't get the $1.15 value?? Have you been in this situation and what did you do? So, if fencing is $1.50 a foot and most of this fence is average to poor, how would you value a running foot in its present state?? $0.50 a foot???

Mike (WA) · Jan 6, 2011

Scott is right- A sale starts the clock over again, and you can assign your own values to depreciable and non-depreciable portions of the purchase, without reference to the previous owner's values or depreciation taken.

Naturally, you want to assign as high a value as you reasonably can to the depreciable portion, but not to the extent that they just laugh and throw you in federal prison.

The key on any assignment of value is to have some credible evidence on which you base your decision- then keep copies of that evidence, whatever it is, in case you ever get audited.

Bob Bancroft · Jan 6, 2011

I am a crop farmer, not an ag. tax expert.
I have never heard of such a thing. The only deductible expense I know of in purchasing land is the interest on any loan. The value of buildings and bin on the land I bought most recently is insignificant compared to the land. It was pattern drained by hand with tiny clay tile every 50' . What value do you put on that?
If I could have expensed or depreciated a replacement value on all the tile here I could have claimed more than I paid for the place, and gotten the land thrown in for free! Is uncle Sam going to swallow that? What am I missing here?

VADAVE · Jan 6, 2011

Forget depreciating the land--it will probably apreciate over time. Around here land went from about $1500/ac 15 years ago to almost $5000/ac and in the last 2-3 years back to $1500/ac.
Barn can be depreciated and the accountant has a schedule. Same with fence and tile, real question is when were they put in and how long will they last. Here the ground is pretty sandy so tile fills in pretty fast. and fence posts can rot off in a couple of years depending on the wood used.
BTW I use a CPA that used to work for the IRS--she KNOWS the rules. She has kept me out of trouble more often then not.

Mike (WA) · Jan 6, 2011

You're missing a really good tax deduction.

Bob Bancroft · Jan 6, 2011

Such as..

NY 986 · Jan 6, 2011

There has to be a basis (specific assigned value) for each of the assets at the time of purchase. Ideally, they should be on a separate bill of sale at the time of purchase. I assume the tile is where it can be visually inventoried (i.e. still above ground). The IRS would probably frown upon mere say-so as basis for the tile (installed, among other things). I can see problems down the road if values are randomly arrived at for the bin and building against the overall purchase price.
If you're not sure about the competency of your accountant then maybe you had better find a new one. It's fine to ask for opinions here but I would rather hang my hat with a top notch accountant.

massey 333 · Jan 6, 2011

I'am with Bob on this,HOW do you depreciat something you never bought??The tile and buildings are freebes until you spend money on them.

brian(MN) · Jan 6, 2011

Yes, you can depreciate tile when you have purchased land. You will have to guess at the footage. I just had some tiling done at $1.35 foot. Other buildings can be depreciated too, providing there is value there.
Brian(MN)

paul · Jan 6, 2011

Depreciation is 20 years.

You bought the land and you bought depreciable items. You did _not_ buy land and got items for free.... Some of you need a good tax lawyer, you got to play the govts' game, they play you!!!

The tile is good and should last 20 years, you value at what it would cost to put in now. Probably 90 cents a foot for 4 inch, can be $5 for 10 inch, depends what you got in there.

The buildings, you can look at the tax assessment, sounds like perhaps only the one building has 'value' that you can put on it.

Average fence I would think would last 20 years, so would value at replacement cost. Poor fence might not have much value.

You decrease your purchase price by the replacement costs of these assets, and depreciate the assets value over 20 years.

It would be real helpful to have that written up as land and assets on the sales papers; but if you keep things fair & spelled out should be ok doing it yourself after the fact. This assumes you are farming it, making money from those assets. If you only have a couple horses for pleasure, and not a business, then forget it, not deductable.....

Very common, any tax advisor worth his pay would do so.

--->Paul

IaGary · Jan 6, 2011

Yep bob all three farms I bought I depreciated the buildings, fences and tile.

One had very little fence or tile. One had a couple of miles of tile. The other had 50,000 in bins and buildings that I wrote off.

It's legal.

Gary

Perplexed · Jan 6, 2011

I'm no expert in these matters, but if you depreciate assets on the property wouldn't that reduce your basis in the land? Assume you paid $200,ooo for some land and then depreciated $50,000 worth of buildings , tile and fenses. If you later sold the land wouldn't your basis then be $150,000?

Bob Bancroft · Jan 7, 2011

I can understand any obvious, above ground improvements with an assessable value being depreciable. In my case that has always been negligible.
Maybe this is a regional difference, but what I don't understand is the tile thing. How do you prove what's there unless there are records available of fairly recent installations? Here any attempt at guessing what's underground would be so arbitrary as to be ridiculous. So what about water wells? Open ditches? Definitely the myriad tons of rock that has been picked and hauled off here is an improvement. Keeping the egdes trimmed back -where does it end?
Now that the price is $5000/acre plus instead of $800, this wouldn't work- but when I bought one could have made the case that the total improvements to make this land profitably farmable exceeded the purchase price!
I guess I just have a mental block.

Bob Bancroft · Jan 7, 2011

Indeed. This conversation has my mind so wound up(along with another issue) I couldn't sleep.
I have a receipt for everything I expense or depreciate. So wouldn't any part of a real estate transaction you hope to depreciate have to be clearly itemized and valued at the time of the sale?
So much of this discussion sounds so arbitrary, and I saw the word "guess" used. How does "I guess" stand up at an audit?

Mike (WA) · Jan 7, 2011

Of course you bought them- they're a part of the property "package" you purchased. You assign a reasonable value to them (probably won't get in trouble going with 40 or 50% of the cost of replacement on buildings in reasonably good condition, probably a little less on tiling), then depreciate those values.

That being said, depreciation has become so incredibly complicated that you should at least have a tax man set them up initially. He can then show you the calculation you need to make each year.

Dfude1 · Jan 7, 2011

I"m as farm boy, former farm owner and retired IRS agent/accountant-still tax preparer. You need to give your tax preparer/CPA the best info you can: feet of fencing/approximate age/condition, size and approx. age of grain bin. Tiling is tough without good maps. Go to the local tilers and ask if they"ve done work or have maps. Take a look in the Spring after the tile are running (no good for this year) and look for dry areas, with wet areas above the tile lines, mark and measure (aerial photo?). Tiling prices for new tile depend on size and depth. You can depreciate it so long as you are a farmer or landlord and use the bins & fencing for business-not personal uses. You are entitled to depreciate the fair marker value-not new cost. FMV is a pretty vague term: means what 2 parties agree on to buy/sell, both knowing all factors (ie-not fraud or other deception). Tax preparer will assign "tax" life, depending on the tax code allows. You need to prove your case as best you can in an audit-contrary to belief, most IRS Agents & Auditors are reasonable people ;-)

massey 333 · Jan 8, 2011

Mike,I just want to clarify what I said(freebees),almost all farm purchases are made on land values,buildings,fences.etc.are considered a liability not an asset to purchase price.Unless it has something super good,Fire Depts.get practice and track hoes-dozers get work(Houses and all.)Takes them off the Tax Rolls.

Tile/fencing/barns depreciation question

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