Farm Depreciation and Section 179

• depreciation
• section 179
• taxes

What is depreciation?

When a farm buys a tractor, building or breeding animal that will last several years, tax rules generally require the cost to be recovered over time rather than all at once. That yearly deduction is depreciation.

Different assets fall into different recovery periods and methods. Publication 225 and the Form 4562 instructions describe how assets are classified. Check the current version, since details change.

Buildings, fences, tile, orchards and breeding animals are treated differently from machinery. Do not assume what works for a tractor works for other assets.

What is Section 179?

Section 179 of the tax code lets certain businesses choose to deduct part or all of the cost of qualifying property in the year it is placed in service, up to a limit. There are also rules tied to taxable income and total purchases.

No dollar amounts are given here, since limits change. Look at the IRS pages for the current limit and any phase-out, and ask a CPA how they apply to you.

Be careful with used equipment, trade-ins and assets bought from relatives, since special rules can apply. Your CPA can explain which ones affect you.

Is a bigger deduction always better?

No. A large deduction now means smaller deductions later, and it may waste lower tax brackets in a low-income year. It can also create recapture if you sell the asset for more than its reduced tax value.

Also remember that a purchase costs real money. Spending a dollar to save a fraction of a dollar in tax rarely makes sense unless you need the asset.

Keep every asset record in one file, whether paper or digital: invoice, date placed in service, cost, business use percentage, and a note when it is sold or traded.

• Think about this year's income and next year's
• Consider recapture when you sell
• Ask whether you would buy it without the deduction
• Check effects on state taxes

What records do you need?

Keep the purchase invoice, date placed in service, cost, how the asset is used for farm versus personal, and any later sale or trade. Maintain a depreciation schedule, either in your accounting software or from your preparer.

Assets used partly for personal purposes, such as a truck, require extra care. Mileage logs and use records support what you claim.

Many farmers find that a short written policy about when to expense and when to depreciate, agreed with their CPA, keeps things consistent from year to year.

How does it affect lenders and your balance sheet?

Tax depreciation often differs from real loss of value. A machine can be fully depreciated on the tax return and still be worth a good deal. Lenders know this and often look at cash flow and market value rather than tax figures alone.

Be consistent in how you present assets to your lender, and explain differences between tax and balance sheet values.

If you are not sure which treatment applies, ask before you file. Fixing it later takes more time and can cost more.

What should you ask before buying?

Ask your CPA how the purchase would be treated, what limits apply this year, and what the effect would be on estimated taxes. Ask your lender how the payments fit your cash flow.

Check the IRS site rather than relying on sales pitches. Dealers sometimes advertise deductions without describing the conditions. Be wary of any claim of guaranteed savings.

How do you plan equipment purchases around the tax rules?

Start with the farm need. Decide what the machine must do, compare options for ownership, leasing and custom work, and test the payment against your cash flow. Only then ask how the tax rules would treat the purchase.

Meet your CPA before you sign. Bring the quote, the expected date the asset will be placed in service, the financing terms and your expected income. The timing of a purchase and of putting an asset into use can matter for tax, so ask rather than guess.

After you buy, send the invoice and loan papers to your preparer right away and keep a copy in your asset file.

• Need first, tax second
• Compare buy, lease and custom hire
• Meet your CPA before signing
• Send invoices to your preparer promptly

Last reviewed: November 12, 2026. Written by the Farm Money & Grants Editorial Team. Educational only, not tax, legal or financial advice. See our editorial policy.