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As we approached the end of 2012, there was nearly as much talk about Section 179 and Bonus Depreciation's impact on farm equipment purchases as there was about the Farm Bill itself. But are these tax breaks all they're cracked up to be? What would happen if they went away?

There's no doubt about it, according to Steven Fisher, analyst for UBS Global Equity Research, both tax breaks are worth it to farmers buying new equipment. In a note to investors last month, Fisher and his cohorts at UBS presented an in-depth case that "Section 179 and Bonus Depreciation move the needle in the buying decision" by U.S. farmers. But is one more important than the other?

It depends on how much a farmer buys.

As Fisher succinctly explains, "If Section 179 depreciation limits were to be significantly lowered, the upfront cash cost of purchasing new or used machinery would increase materially. In our analysis, we show that buying a new or used $200,000 tractor would require ~$50,000 more cash upfront without a meaningful Section 179 allowance."

According to Fisher, Section 179 allows for accelerated depreciation of an asset in the year of purchase, with the current law allowing for up to $500,000 in deductions in 2013. But this benefit phases out once buyers purchase over $2,000,000 of equipment (in 2013).

"Section 179 is designed as a benefit for 'small and medium' sized businesses, hence the phase out once purchases surpass $2,000,000. The deduction phases out 1:1 with total machinery purchases beyond $2,000,000, so a company buying $2,500,000 of equipment in 2013 would see no benefit from Section 179, but they would see a benefit from bonus depreciation."

Fisher lists three key differences between Section 179 and bonus depreciation:

• Bonus depreciation can only offset new equipment, Section 179 can offset new and used, as long as it's "new to you."
• Bonus depreciation can be taken in a year with a net operating loss and carried forward to future years; Section 179 cannot.
• Bonus depreciation does not have a $500,000 deduction limit, and does not phase out with equipment purchases over $2,000,000.

About these tax breaks, Fisher quotes Tony Huegel of Deere's investor relations group, as saying, "So it is helpful, but not that significant where it changes our forecast drastically, one way or the other."

I doubt that you would hear those words coming from many equipment dealers or farmers. "We believe removal of the Section 179 benefit would cause material delays in the purchases of new or used machinery," says Fisher.

He adds that the major takeaway from this is that Section 179 provides a greater deduction and will only benefit small to medium sized farmers. On the other hand, bonus depreciation is a benefit to large new machinery buyers of any size, though this benefit as a percent of total machinery cost is lower than that provided under Section 179. It is important to differentiate Section 179 from bonus depreciation, he says, as they may be legislated separately on a go-forward basis.

Fisher summarizes his outlook for the future of Section 179 and bonus depreciation: "We believe there is strong support for depreciation benefits at the manufacturer and customer level. We assume the provisions will be part of a broader tax reform discussion, which may take time to resolve. As a result, we think there will be ongoing headline risk, driving concerns of either reductions or eliminations."

There's little doubt that, right along with high commodity prices, Section 179 and the bonus depreciation rules have had a significant impact on ag machinery sales in recent years. But I still wonder, if farmers had their pick of one or the other of these, which one would they pick.

Tell us what you think. Click the link here and take our survey: What has more influence on farmers' equipment buying decisions, high commodity prices or Section 179 or bonus depreciation tax breaks?