purchase farm equipment

The following information is provided by Nationwide, the No.1 farm and ranch insurer in the U.S.¹

The IRS tax code Section 179 deduction is a way to reduce the total cost of new equipment and machinery by enabling the buyer to claim full depreciation in year one. Normally, that depreciation (referred to as “bonus depreciation” by the IRS) would be parceled out annually over the time the purchase is financed. You should consult with your personal tax advisor for guidance on Section 179.

According to the IRS, Section 179 deduction was expanded in 2018 to cover both used and new qualifying equipment.

Farm equipment tax write off

Under Section 179, you can choose which purchases to cover and which you would like to save as future tax breaks. Some farmers and ranchers choose to split the Section 179 deduction for individual purchases in their year-over-year tax planning. You should consult with your personal Tax Advisor for guidance on Section 179.

“In years past, when your business bought qualifying equipment, it typically wrote it off a little at a time through depreciation. In other words, if your company spends $50,000 on a machine, it gets to write off $10,000 a year for five years,” according to Section179.org, a hub of information on the deduction. “Now, while it’s true that this is better than no write-off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it. And that’s exactly what Section 179 does — it allows your business to write off the entire purchase price of qualifying equipment for the current tax year.”

Who and what farm equipment qualifies for a Section 179 deduction

According to the IRS, anyone buying, financing or leasing new or used equipment will qualify for a Section 179 deduction, provided the total amount is less than the yearly cap. For farmers, that typically means equipment, machinery, tools and software purchased between Jan. 1 and Dec. 31.

How much can I save?

For example, on equipment purchases of $1.15 million, the first-year write-off is typically $1.05 million, with a bonus first-year depreciation of $100,000. After Section 179 and bonus depreciation are claimed, straight-line depreciation may kick in after the effectiveness of the two prior forms of depreciation are utilized. Straight-line depreciation allows equipment purchased to be depreciated at a rate spread over the remaining years of its expected salvage value. For a piece of equipment with a useful life of five years, that means the total value declines by 20% each year. To leverage a Section 179 deduction in a case like this example, the first step is to consult with your personal tax advisor.

Section 179 considerations

While the tax incentives under Section 179 are appealing to drive down income, farmers and ranchers should avoid depending only on this Code section. “Section 179 is certainly a powerful tool for farmers, but it also comes with some items to watch out for. If you sell the asset you took a 179 deduction on prior to the end of its’ useful life you will be subject to recapture rules. Additionally, if you are planning to transition your operation to the next generation you may be building up a tax wall that may hinder your ability to effectively and efficiently transition those assets how you desire,” said Steve Hamilton, JD of the Nationwide Retirement Institute.

How can I learn more?

You and your tax professional can reference Section179.org for information you need to make the most of the Section 179 deduction and bonus depreciation before the end of the year. Find additional ideas to protect and strengthen your operation at aginsightcenter.com.

[1] *A.M. Best Market Share Report 2022. Nationwide, the Nationwide N and Eagle, and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2023 Nationwide
The issue of property taxation remains as one of the biggest challenges our members face today. Ensuring agricultural property is valued for its agricultural potential and not development is critical to the continued success of Ohio agriculture.
Matt Aultman's avatar
Matt Aultman

Darke County Farm Bureau

Giving farmers a voice
The plan we are on is great. It’s comparable to my previous job's plan, and we are a sole proprietor.
Kevin Holy's avatar
Kevin Holy

Geauga County Farm Bureau

Ohio Farm Bureau Health Benefits Plan
I could not have done it without the resources I have found through Farm Bureau.
Gretchan Francis's avatar
Gretchan Francis

Trumbull County Farm Bureau

Bringing the farm back to life
We really appreciate what Farm Bureau has done to get people interested in this line of work and workforce development and getting people interested in this industry.
Jody Brown Boyd's avatar
Jody Brown Boyd

Brown's Family Farm Market

Finding farm labor
We work terrifically with the Ashtabula County Farm Bureau, hosting at least one to two outreach town hall events every year to educate new farmers and existing farmers on traditional CAUV and woodlands.
David Thomas's avatar
David Thomas

Ashtabula County Auditor

CAUV: Past, present and future
Because we are younger farmers just starting out, Farm Bureau has a lot of good opportunities and resources to help us grow in the future.
Hannah Kiser's avatar
Hannah Kiser

Sandusky County Farm Bureau

Farm Bureau involvement
Through the Select Partner program, we became educated in farm insurance and weren't just selling policies. It became more and more clear why farmers need an advocate like Ohio Farm Bureau.
Chad Ruhl's avatar
Chad Ruhl

Farm manager, CSI Insurance

Select Partner Program
So many of the issues that OFBF and its members are advocating for are important to all Ohioans. I look at OFBF as an agricultural watchdog advocating for farmers and rural communities across Ohio.
Mary Smallsreed's avatar
Mary Smallsreed

Trumbull County Farm Bureau

Advocacy
Suggested Tags: