Taxpayer has farm income of 2500.00 and royalty income of 20000.00. Can taxpayer use the royalty income to sec 179 equipment purchased.
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I think it depends...
On whether the royalties are associated with a business.Evan Appelman, EA -
If the royalties are oil and gas related,
which I have had to deal with a lot around here in the past year, including on my own farm;
the proceeds are reported on Sch E and can not be used for 179 expensing. Only business income can be used for 179, for this case W-2 income is considered business income.
What you CAN do though, if the purchases are for new equipment, is to take advantage of the bonus depreciation on equipment purchased for the farm. Either 50% or 100% whichever is better for the situation. Bonus depreciation can create a loss on the schedule F to offset the Sch E income. Sec 179 can not create a loss, excess would be carried forward. We have used this method many times for those receiving the upfront bonus checks for oil and gas leases. Those are reported as rents on the Sch E.AJ, EAComment
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