Tax Tips – How Does Depreciation Deductions Impact Farmers?*

The Tax Cuts and Jobs Act changed how farmers and ranchers can deduct farming equipment for depreciation.

Depreciation deductions allow taxpaying farmers to recoup some of the costs for the use of their property and equipment.

Here are some of the changes to the tax code:

  • New farming equipment and machinery is considered five-year property. If you put equipment or machines in service after December 31, 2017, the period of recovery is five years (from seven years).
  • Grain bins, cotton-ginning equipment, fences, and other land-improvement equipment are exempt from the shorter recovery periods.
  • Used equipment falls under the seven-year rule.
  • Farming equipment put in service after December 31, 2017, does not have to adhere to the 150% declining balance method.
  • New and certain types of used equipment obtained and put in service after September 27, 2017, may qualify for the 100% first-year bonus depreciation but only for the tax years it was first used.
  • You may expense section 179 property. Section 179 property is tangible, purchased (not leased), used more than 50% in your business, put in service in the current tax year, and acquired from someone to whom the farmer is not related. The new tax code increased the maximum deduction to $1 million (from $500,000).

Other provisions are available, and you can find more information on the IRS website.

* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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