mind on such judgement calls, one IRS Revenue 

 Agent suggested the following. Treat expenses that 

 fall in the grey area between repair and improve- 

 ment as capital expenditures. Then, provided that 

 they are on property that qualifies for section 179 

 deduction, take the entire amount as a section 179 

 deduction. 



More on Section 179 Deduction 



Joint Ownership. For example, three individu- 

 als (not related, not partners) each pay 1/3 the cost 

 of a combine. Each uses it on his or her individually 

 managed farm. Each owner is entitled to claim the 

 maximum section 179 deduction (currently $17,500) 

 in the year of purchase. 



Remember that the section 179 deduction can 

 be claimed on tangible personal property used in 

 your trade or business and on single-purpose live- 

 stock buildings, greenhouses, and mushroom sheds 

 used in commercial production. The cost of the as- 

 set less the amount of the section 179 deduction is 

 the unadjusted basis on which depreciation is fig- 

 ured. There are some limitations. For example, 

 equipment purchased by a son fi-om a father, or from 

 another brother, does not qualify for the section 179 

 deduction. 



Health Insurance 



As a self employed individual, you can now de- 

 duct (as an adjustment to income on Form 1040) 

 30% of the amount paid for health insurance cover- 

 age for yourself, your spouse, and your dependents. 

 The 30% rate applies to 1995 and later years. Eligi- 

 bility conditions are unchanged. You are ineligible 

 to take the deduction for any month in which you 

 are also an employee and your employer offers a 

 subsidized health plan. You are also ineligible if you 

 could participate in a plan offered by your spouse's 

 employer. 



The 30% rate also applies to a general partner 

 or a limited partner receiving guaranteed payments 

 and to a shareholder who owns more than 2% of 

 the outstanding stock in an S-corporation. The 

 amount of premium paid by the partnership or cor- 

 poration is a deductible expense to the business and 

 is taxable income to the person insured [IRC 162(1), 

 and Self Employed Health Insurance Act (PL 104- 

 7)]. 



Health and accident insurance provided to em- 

 ployees can be claimed as a deduction by the em- 

 ployer on Schedule F and does not have to be in- 

 cluded in the employee's income [IRC 105(b)]. 



A self-insured plan (in which the employer re- 

 imburses the employee's medical expenses) is sub- 

 ject to non-discrimination requirements. It must 

 be in writing and must serve all employees (with 

 certain exclusions). A plan purchased from a third 

 party (an insured plan) does not have a non-dis- 

 crimination requirement. A sole proprietor can enrol 

 an employee spouse in an insurance plan that pro- 

 vides coverage for family members and deduct the 

 full amount as a business expense. 



Self Employment Tax for a Partner 



A general partner in a limited partnership is 

 subject to SE tax even though he or she performs 

 no services or does not materially participate. 

 There are some exceptions for retired general part- 

 ners with many restrictions. 



Figuring Estimated Tax 



In figuring "2/3 gross income from farming" for 

 estimated tax purposes, gain from sales of machin- 

 ery on Form 4797 is not included but gain (not 

 loss) from sale of livestock for draft, breeding, 

 sport, or dairy is included. 



Office in the Home 



A home office on a farm where the office is used 

 regularly and exclusively for the farm business 

 is entitled to home office deductions. 



Deductions for Cars and Trucks 

 Used in Business 



Passenger automobiles are treated differently 

 from trucks. Passenger automobiles are listed prop- 

 erty, as are vans or trucks of 6,000 pounds gross 

 vehicle weight or less [IRC 280F(d)(5)(a)]. Many, but 

 not all, pick-up trucks fall in the listed property 

 category. Also, one truck may be under 6,000 pounds 

 GVW while another truck of the same model and 

 manufacturer but with different manufacturer's 

 options may be over 6,000 pounds GVW. 



Farm trucks would be depreciated at the 

 MACRS rate (as 5-year property) except deprecia- 

 tion of farm trucks may be limited because: 



1. Truck is under 6,000 pounds gross vehicle 

 weight (as rated by the manufacturer). Such a 

 vehicle is listed property. For vehicles placed in 

 service in 1995, the limitsof depreciation and 

 section 179 deduction combined are $3,060 in 



Fruit Notes, Winter, 1996 



15 



