Farmers and ranchers, over the course of daily tasks and business, purchase a variety of items for use on the farm. Many of these items are consumed within a year of purchase and are deducted as a yearly expense when taxes are filed. Things such as seed, fertilizer, feed, vaccines, etc. There are other large purchases farmers and ranchers make that have a useful life greater than a year. The cost of those items is normally recovered over a number of years as an income tax deduction called depreciation.
Property that is generally depreciated includes property that you own, property that is used in your business or income generating activity (tractors, trailers, other farm equipment, etc.), property that has a determinable useful life, and property expected to last longer that a year.
Definition of Depreciation: “A reduction in the value of an asset with the passage of time, due in particular to wear and tear.”
Depreciation is a method used to allocate the cost of a tangible asset over its useful life. For farmers and ranchers, this includes farmland improvements, machinery, equipment and other farm materials. The IRS allows for different methods and schedules to depreciate these assets, each with its own set of rules and benefits.
Farmland itself if not depreciable since it is not subject to normal wear and tear. However, the improvements made to the land can be depreciated. Types of improvements include irrigation systems, drainage systems and fences. Irrigation and drainage systems are usually depreciated over 15 years using the Modified Accelerated Cost Recovery System (MACRS). Fences are typically depreciated over 7 years.
Farm equipment and machinery are a large part of any farm or ranch operation and those items are subject to depreciation. Machinery and equipment such as tractors, combines, plows, etc. are depreciated over 5 years using MACRS. Farm vehicles like trucks can also be depreciated over 5 years using MACRS. It is important to note that the actual business use of the vehicle must be substantiated.
Farmers can elect to expense the cost of qualifying property in the year it is placed in service, up to a certain limit. Property is placed in service when it is ready and available for a specific use. It is not required that the property be actually used for that specific purpose by the date is it “placed in service”. Example would be a purchase and delivery of a hay rake in mid-December, but not actually using the rake until May of the next year. The “date placed in service” would be in December.
Bonus depreciation is an additional first-year deduction that lets farmers write off a large portion of the cost of eligible assets such as new or used equipment in the year they are purchased. Under the Tax Cuts and Jobs Act, bonus depreciation was enhanced to allow a 100% write-off for assets purchased and placed in service after Sept. 27, 2017 and before Jan. 1, 2023. Starting in 2023, bonus depreciation was set to phase out by 2027. The Big Beautiful Bill signed July 4th, 2025 allows farmers and ranchers to continue to use the Bonus Depreciation for assets acquired after Jan. 19, 2025. This provision has been a boon for the agriculture sector, providing immediate tax relief and incentivizing investments in new equipment and technology. Farmers now have the option to continue to use this tax strategy for managing tax liability and improving cash flow.
Various farm materials used on the farm that can be depreciated include: Buildings and structures (typically depreciated over 20 years using MACRS.), this includes barns, storage facilities and greenhouses. Tools and small equipment (depreciated over 3 to 7 years depending on the item). Specialized livestock facilities such as dairy barns can be depreciated over 10 to 15 years.
Practical Steps to Maximize Depreciation Benefits
To maximized depreciation benefits you should maintain detailed records. Accurate records are very important for keeping track of purchase dates, cost and useful lives of depreciable assets. This includes invoices, receipts and any relevant contracts you may have. Having a dedicated file to keep these records are important to staying organized.
Consult with a trusted tax professional that has experience in agriculture taxation. The depreciation rules are complex and there are frequent updates to tax laws, so consulting with a CPA or tax profession is crucial to staying in compliance and maximizing deductions.
Utilizing tax software can help in managing and calculating depreciation. This can also make it easier when accounting for all eligible assets and making sure assets are properly accounted for and depreciated according to the IRS rules.
Understanding and properly managing the depreciation of farmland improvements, farm equipment and various farm materials can lead to substantial tax savings for farmers. Accurate record-keeping and professional tax advice are key to navigating the different complex rules and laws and maximizing benefits.
Brian is a 2022 graduate from Bethel University with a degree in Business Administration.
