New tax savings offer unprecedented opportunity to update equipment.

A strong farm bill, a break in drought-like conditions, and a favorable growing season throughout much of the US--these are just a few reasons to believe there will be significant growth in farm revenues in 2003-04. As a result, the advantages of a new tax law couldn't have come at a better time for producers with the means and the desire to reinvest in the equipment infrastructure of their operations.

In May, the Jobs and Growth Tax Relief Reconciliation Act of 2003 was passed by Congress and signed into law by President Bush. For farmers, the act provides the chance to take additional first-year depreciation amounting to 50 percent of the tax basis/cost on capital investments made after May 5, 2003 and prior to January 1, 2005.

"Depending on their individual financial situations, this new law could be a win-win for farmers," says Thomas Jarrett, director of taxes, John Deere. "The additional depreciation offers significant tax savings over the near term, while the investment in new equipment technology can deliver benefits of improved operating efficiency and productivity over the long term."

John Deere has developed an easy-to-use, Microsoft Excel-based calculator, available on JohnDeereAg.com. Producers can use this calculator to help determine the impact of the new depreciation allowance on equipment purchases in their operations. Using a John Deere 8420 MFWD Tractor (adjusted basis of $160,000) as an example, the depreciation in the first year of a normal schedule would be $17,143. With the election of the 50 percent allowance, the first-year depreciation on this same tractor would increase to $88,571. This would result in a potential tax savings of $25,000 for the year of purchase.

The new tax law pertains to both midyear (half-year) and mid-quarter convention depreciation methods. The additional first-year depreciation is not available on used equipment purchases. Equipment buyers also need to be aware that the 50 percent depreciation option applies on an asset-class basis. Simply put, producers who want to apply the additional depreciation to one piece of new equipment purchased after May 5 are required to apply it to all new equipment purchases within that asset class. Finally, the additional first-year depreciation should not be viewed as an investment credit.

Another intriguing component of the new tax law is a significant increase in the Section 179 Expense Deduction. Under the old rules the Section 179 allowance was capped at $25,000. The new law--in place for the 2003, 2004 and 2005 tax years--increases that amount to $100,000. This means you can immediately deduct 100 percent of the cost (up to $100,000) of most new and used equipment for the year it's put into service. It's important to note that a person wanting to use the full 179 Expense Deduction must have a taxable income of at least $100,000. Also, the provision applies only to individuals who acquire no more than $400,000 of equipment during the year (up from the $200,000 limit of the previous tax code). Every dollar in purchases exceeding the $400,000-1imit decreases the Section 179 Deduction by a dollar.

Worksheet illustrations can be downloaded from the John Deere Internet site --http://www.johndeere.com/en_US/ newsroom/2003/releases/ farmersandranchers/030818_taxnr. html. Be sure to consult with your tax advisor to gauge how the provisions of the Jobs and Growth Tax Relief Reconciliation Act of 2003 might benefit your operation.

Accelerated Depreciation Illustration

Job and Growth Tax Relief Reconciliation Act (JGTRRA) of 2003

Sample Machine: 8420 MFWD Tractor

Machine's Adjusted Basis: $160,000

Declining Balance Method: 150%

Depreciation Life (Years): 7

Year Purchased: 2003

Accounting Convention: Mid-year

        Normal Depreciation    JGTRRA 2003       Potential Tax
        Schedule               Provisions        Savings

2003    $17,143     11%        $88,571    55%    $25,000
2004    $30,612     19%        $15,306    10%    ($5,357)
2005    $24,052     15%        $12,026     8%    ($4,209)
2006    $19,598     12%         $9,799     6%    ($3,430)
2007    $19,598     12%         $9,799     6%    ($3,430)
2008    $19,598     12%         $9,799     6%    ($3,430)
2009    $19,598     12%         $9,799     6%    ($3,430)
2010     $9,799      6%         $4,900     3%    ($1,715)

For further information, contact Barry E. Nelson, John Deere Agricultural Marketing Center, 11145 Thompson Avenue, Lenexa, Kansas 66219-2302; ph: 913-310-8324;fax: [phone]: e-mail: [e-mail].