How Farmers Can Leverage Bonus Depreciation under the Big Beautiful Bill

Key Takeaways:
  • The comeback of 100% bonus depreciation creates a significant advantage in tax planning for the agriculture industry.
  • Utilizing bonus depreciation can significantly improve short-term cash flow, allowing for reinvestment in farm operations and debt reduction.
  • Consulting with industry tax advisors is crucial for farmers to navigate the complexities of tax regulations and optimize their tax savings.

 

The agriculture industry is no stranger to the ebb and flow of tax regulations, and one of the most significant changes is the comeback of 100% bonus depreciation. President Trump signed the Big Beautiful Bill on July 4th, 2025, which allows farmers and other businesses to take advantage of 100% bonus depreciation on the cost of qualifying assets. Introduced as part of the Tax Cuts and Jobs Act (TCJA) in 2017, bonus depreciation allowed farmers and other businesses to write off a substantial percentage of the cost of eligible assets in the year they were purchased. Starting in 2023, we began to phase out of 100% bonus depreciation. Now farmers can continue to use this tax advantage for assets acquired after Jan. 19, 2025. 

Understanding Bonus Depreciation 

Bonus depreciation is an additional first-year deduction enabling farmers to write off a significant portion of the cost of eligible assets in the year they are purchased. This provision has been a boon for the agriculture sector, providing immediate tax relief and incentivizing investments in new equipment and technology.

Under the TCJA, 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 completely by 2027. Now farmers and other businesses have the option to continue to use this tax strategy for managing their tax liability and improving their cash flow.

What Qualifies for Bonus Depreciation?  

To benefit from bonus depreciation, farmers must ensure that their assets qualify. Qualifying assets include: 

  • MACRS property with a recovery period of 20 years or less.
  • Depreciable computer software.
  • Water utility property.
  • Qualified leasehold improvement property.
  • Vehicles with a useful life of 20 years or less.
  • Used equipment, provided it was placed in service in the current year.

Consult with a farm tax advisor to verify the eligibility of specific assets and ensure compliance with IRS regulations. 

Is Bonus Depreciation Subject to Recapture?  

Bonus depreciation is subject to recapture up to the amount of bonus depreciation taken. This recapture is taxed as regular income, with a cap on the tax rate at 25%. Farmers must be aware of this potential tax liability and plan accordingly. 

How Does Bonus Deprecation get Reported?  

To report bonus depreciation, farmers must claim it on form 4562 by the due date (including extensions) of the federal tax return for the year in which the property was placed in service. Proper documentation and timely filing are critical to ensure the benefits of bonus depreciation are realized without issues. If a farmer chooses not to claim bonus depreciation, then they will need to opt out.  

Section 179 Depreciation 

If a farmer does not want to use 100% bonus depreciation, there is still another tax advantage: Section 179. The ability to elect out of bonus depreciation and use 179 selectively provides valuable flexibility for managing taxable income across entities or years. However, Section 179 has limitations that could restrict the total deduction each tax year. Farmers must adhere to total purchase rules and total deduction rules under Section 179. For example, a 20-year farm building such as a machine shed would not be eligible for 179. However, it would be eligible for bonus deprecation. While this provides some depreciation relief, it is less generous than bonus depreciation. 

Strategic Planning for Farmers 

With the comeback of bonus depreciation, farmers must continue to strategize to maximize their benefits. Here are some key actions to consider: 

  • Cash Flow Management: Utilizing bonus depreciation can improve cash flow by reducing tax liabilities in the short term. This can provide additional funds for reinvestment in farm operations or paying down debt.
  • Incentive for Modernization: The availability of bonus depreciation creates a strong incentive to invest in new equipment and technology. Modernizing farm operations can lead to increased efficiency, productivity and long-term profitability.
  • Consult with Industry Tax Advisors: Given the complexity of tax regulations, it is important for farmers to work closely with tax advisors who understand the agriculture industry to ensure compliance and optimize tax savings. 

The comeback of 100% bonus depreciation creates a significant advantage in tax planning for the agriculture industry. By understanding the qualifying criteria and planning strategically, farmers can continue to leverage these benefits and maintain a strong financial footing as they adapt to the evolving tax landscape. If you would like to discuss your farm tax strategies, contact an Adams Brown agriculture advisor.