Tractors, Antique or Not, Are Deductible
I’m almost certain that like myself you have some friends or acquaintances that have embraced the “Getting Back to Basics” lifestyle during the past couple of years either because they are striving for better health options and choices to maybe some cost savings due to increasing grocery costs and expenses. I for one have benefited from my neighbor’s chicken coop that produces fresh eggs for my family and me.
Thus, this article caught my attention the other day…
Steven Hoakison took his federal income tax case to court, where the IRS asserted that
- Steven Hoakison was a collector of antique tractors, and
- The 40 farm tractors in dispute due to the IRS audit were purchased by Hoakison primarily for
personal reasons and served no business purpose.
To push its no-business-purpose position, the IRS noted that 37 of the 40 tractors in dispute were more than 40 years old at the time Hoakison purchased them and that there “is obviously an element of nostalgia” involved because the tractors were similar to those he used while growing up. (Some of the tractors were over 75 years old.)
The IRS further asserted that Hoakison could not actually have needed the number of tractors reported for the years at issue because the work performed by each of the newly acquired 29 tractors could also have been performed by the existing 17 tractors.
(Yes, this totals 46 tractors. We are focusing on the 40 that the IRS wants to disallow.)
Hoakison farmed 482 acres. The IRS noted that Ray Powell, Hoakisonʼs tax preparer, farmed about 240 acres and used only five or six tractors.
How the Court Ruled
The court noted that:
- Although Hoakison could have performed the same work with the 17 original tractors, that fact is not relevant to the deductibility of the new tractors, and
- The only requirement for the newly acquired older tractors (the 40 tractors in dispute with the IRS) is that they are used in Hoakison’s farm business—which they were.
Thus, the court ruled for Hoakison.
The IRS brought up the antique issue, as you saw in the opening of this article. The court allowed the tractor deductions based on use in the business and in its ruling cited both the Simon and Liddle antique music instruments cases you see in Build Net Worth by Using Depreciable Antiques in Your Business (may require subscription).
Key Point: The Hoakison case involved an Iowa farmer outside the Second and Third Circuit Courts of Appeal, where precedent from the Simon and Liddle cases did not have to be followed. But the court did follow both the Simon and Liddle cases and cited them as an authority.
Why So Many Tractors
Hoakisonʼs farms consisted of five non-contiguous pieces of property located miles apart. Driving a tractor from the main farm to one of the other farms could take between 45 and 60 minutes each way.
Hoakison deemed that a waste of time. He worked a full-time, often physically demanding job as a UPS delivery driver.
To make the best use of the limited time he had available to farm each day, he would leave his tractors at the different farms, often with implements attached and/or mounted, designating each tractor for a specific task.
Why Older Tractors
Hoakison explained to the court that he buys older, used tractors because he can afford to purchase several tractors at a time, in cash and without incurring debt, while a single newer-model tractor could cost $120,000 or more.
Further, Hoakison had a better understanding of the mechanics of older tractors, allowing him to perform most repairs and maintenance himself, saving time and avoiding the need to hire someone else to do so, as he would need to do with modern, more sophisticated tractors.
Takeaways
Most everyone operates their business differently. The key to business assets and their deductions is how you use the assets.
In this case, you see about 46 tractors used on five different tracts of land, with many tractors outfitted with specific implements. The central idea: use all the tractors to save time.
The tractors were deductible using either depreciation or Section 179 expensing because they were physically used in the farming operation. It didnʼt matter whether they were antiques or classics. It was the physical business use that made for the deductions.
Yes for all intents and purposes in the Hoakison case, the work performed by each of the newly acquired 29 tractors could also have been performed by the existing 17 tractors (For a total of 46 tractors while focusing on the 40 that the IRS wants to disallow).
The court noted that:
- Although Hoakison could have performed the same work with the 17 original tractors, that fact is not relevant to the deductibility of the newly acquired tractors; and
- The only requirement for the newly-acquired-older tractors (the 40 tractors in dispute with the IRS) is that they be used in Hoakison’s farm business—which they were.
We at Morris + D’Angelo realize that almost everyone operates their businesses differently. We believe that the key to business assets and their deductions is how you use your assets. If you have any questions, need clarity, or need help understanding how to utilize your antique collection better or maximize your gains to further help retain or maximize your financial security, please contact us at Morris + D’Angelo. This is our Expertise!
Parts of this article are published with permission from Bradford Tax Institute, © 2021 Daniel Morris, Morris + D’Angelo
Daniel Morris
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