Farm Finance · November 2025 · 6 min read
Depreciation is one of the most powerful tax tools available to farmers, allowing you to deduct the cost of equipment, buildings, and improvements over their useful life. Section 179 expensing and MACRS depreciation schedules offer different strategies for managing taxable income across years. Understanding these options helps you time equipment purchases for maximum tax benefit.
Section 179 allows farmers to deduct the full purchase price of qualifying equipment in the year it is placed in service, rather than spreading the deduction over multiple years. The annual deduction limit is over $1 million for most farm operations, which covers nearly any single equipment purchase. This is particularly valuable in high-income years when you need to reduce taxable income.
Qualifying property includes new and used equipment, machinery, single-purpose agricultural structures, and certain improvements. The deduction is limited to your taxable business income, so you cannot use Section 179 to create a net operating loss. Any amount that exceeds income can be carried forward to future years.
MACRS (Modified Accelerated Cost Recovery System) spreads the cost of an asset over a set recovery period. Farm machinery and equipment fall into the 5- or 7-year class, while agricultural buildings use a 10- or 20-year schedule. Single-purpose livestock and horticultural structures qualify for 10-year recovery, and general farm buildings use 20 years.
Bonus depreciation allows an additional first-year deduction on qualifying new and used property. The bonus percentage has been phasing down from 100% in recent years, so check the current rate with your tax advisor. Unlike Section 179, bonus depreciation can create a net operating loss that is carried back or forward to offset income in other years.
Strategic tax planning involves choosing the right depreciation method for each asset based on your income situation. In a high-income year, Section 179 or bonus depreciation accelerates deductions. In lower-income years, regular MACRS spreads deductions into future years when they may be worth more. Work with a farm-savvy tax professional to model different scenarios before making year-end equipment purchases.
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Try the Profit CalculatorListed property includes vehicles and equipment that could be used for personal purposes, such as pickup trucks. If business use falls below 50%, you cannot use Section 179 or accelerated depreciation and must use straight-line depreciation instead. Maintain a mileage log or usage record to document business use percentage.
Keep detailed records of purchase date, cost, and placed-in-service date for every depreciable asset. A depreciation schedule maintained by your tax preparer tracks each asset's remaining basis and annual deduction. This information is critical when you sell or trade equipment, as depreciation recapture can trigger taxable gain.