Time is running out for farmers who want to reap a federal tax deduction of up to $250,000 from the purchase of farm machinery.

The deduction was set to be reduced in 2009, but was extended as part of the federal economic stimulus plan passed earlier this year.

The provision, Section 179 of the federal tax code, can be combined with other deductions for major tax savings -- if farmers buy machinery by the end of the year, said Salem, Ore-based tax accountant and attorney John Hawkins.

Equipment is subject to 50 percent bonus depreciation and regular depreciation in addition to the Section 179 deduction, he said.

For example, a grower who buys $700,000 worth of equipment can deduct $250,000, leaving him with $450,000 in potential depreciation.

Half of that amount, or $225,000, can also be deducted from his income under the bonus depreciation provision.

A portion of the remaining $225,000 can be deducted as well, depending on the depreciation schedule for that piece of machinery.

There is a $800,000 threshold for Section 179, which means equipment purchases above that limit don't qualify for the $250,000 deduction, Hawkins said.

However, growers who surpass the $800,000 cap can still benefit from the 50 percent bonus depreciation, he said. "You can get into a situation where you can use the one but not the other."

It should be remembered that the tax policies in some states have diverged from those of the federal government, which affects deductions for equipment, said Salem ag accountant Tonk Fischer.

"We're going to have a separate appreciation schedule for Oregon," Fischer said.

Oregon and California both have reduced Section 179 deductions and no 50 percent bonus depreciation, while Idaho's schedule is still connected to the federal government's.

There is no effect on Washington farmers, since that state doesn't have an income tax, he said.

-- Mateusz Perkowski