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Installment Method for Gain Sales
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An effective way to hedge against unknown accelerated depreciation limits may be to form a strategy to leverage the installment method (Section 453) for the reporting and recognition of income from deferred payments on grain sales.


Source: GreenStone Farm Credit Serivces

Installment Method for Grain Sales


The unpredictability of lawmakers in Washington, D.C. can make tax planning very difficult. This was especially true when the 2012 American Taxpayer Relief Act was enacted on January 2, 2013 which retroactively increased the Section 179 limit from $139,000 to $500,000.

It is shaping up to be a similar situation for 2014. The current Section 179 direct expense depreciation limit is set at $25,000 for 2014 and 50 percent bonus depreciation has been eliminated. Many experts believe that amount will be increased, but the change will not come until after the election which takes place in November. Also, they are not sure what the amount will be changed to. Therefore, the issue that we are dealing with is the timing of depreciation expense.

An effective way to hedge against unknown accelerated depreciation limits may be to form a strategy to leverage the installment method (Section 453) for the reporting and recognition of income from deferred payments on grain sales. The term “installment sale” means a disposition of property where at least one payment is to be received after the close of the taxable year in which the disposition occurs. This can be accomplished through deferred payment contacts that call for the actual sale of grain; however, payment is deferred to the following year.

You can elect out of reporting on the installment method on a sale-by-sale basis. If you elect out, the transaction is taxed in the year of the sale rather than when payment is collected. The election must be made by the due date of the taxpayer’s return (including extensions) for the taxable year in which the disposition occurs.

Ideally, you will have many small grain sales at year-end so the optimal amount of income could be accelerated into the previous year just in case congress increases or extends the amounts for accelerated depreciation.

This notice is required by IRS Circular 230, which regulates written communications about federal tax matters between tax advisors and their clients. To the extent the preceding information and or any attachment is a written tax advice communication, it is not a full "covered opinion." Accordingly, this advice is not intended and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. Such assurances can be granted only by securing a covered opinion letter. Should you wish to explore the option of receiving a covered opinion letter relating to a tax advice matter, please contact us.