Agriculture is a cornerstone of our economy, uniquely supported by the government through targeted tax incentives. One such incentive, bonus depreciation, is a game-changer for all businesses, especially those in the diverse farming industries. The One Big Beautiful Bill (OBBBA) of 2025 permanently reinstates this benefit which extends to every sector within agriculture, even those previously excluded, providing accelerated depreciation benefits.

Depreciation Dynamics

Depreciation is a crucial accounting strategy that allows businesses to distribute the cost of an asset over its operational lifespan, taking into account the asset's wear and tear. This method helps businesses recover their investment efficiently and offers significant tax relief by permitting a substantial deduction of the asset's cost in the year it is acquired rather than elongating it across its useful life.

 While The Tax Cuts and Jobs Act (TCJA), introduced in 2017, enhanced this benefit through bonus depreciation, the TCJA provisions were set to phase out on a graduated scale and be completely eliminated in 2027. However, the OBBA has made 100% bonus depreciation a permanent accelerated depreciation benefit for qualified property acquired and placed in service after January 19^th, 2025.

For the farming community, the TCJA  also included specific provisions for bonus depreciation related to certain plants—such as fruits, nuts, and vines—that are essential to their operations,. The IRS has confirmed that this beneficial provision still applies under the permanent provisions recently enacted under OBBA. This article aims to shed light on bonus depreciation and its advantageous impact on all businesses, particularly in the agricultural sector.

Additionally, it is essential to recognize that most states do not conform to federal bonus depreciation rules, leading to differences in federal and state taxable income. This disparity can complicate financial planning and tax obligations, underscoring the importance of consulting with tax professionals well-versed in federal and state tax regulations.

Critical Aspects of Depreciation for Farmers

Commencement and Conclusion of Depreciation: Generally, depreciation starts when an asset is placed in service within a trade or business. For specified plants, such as fruits, nuts, or vines, this traditionally meant waiting until the plant began producing income. However, as a result of OBBA, these plants can now be considered placed in service upon planting—a significant acceleration that facilitates immediate depreciation.

Making the Most of the Election for Specified Plants: Under Internal Revenue Code §168(k)(5), farmers have the option to treat specified plants as placed in service upon purchase. This election is made by attaching a statement to a timely-filed tax return indicating the election under this specific code section and identifying the selected plants.

What’s To Come

With the enactment of the OBBA, the window for accelerated depreciation was left wide open. This provision offers immediate financial relief and encourages investment in new equipment and technology, which are crucial for maintaining competitiveness and efficiency in today's agricultural landscape. It also adds additional layers to tax planning to determine the best strategy for each individual situation to optimize deductions and manage cash flow.

The window for accelerated depreciation is open until 2026, presenting a time-sensitive opportunity for farmers. While the full benefit of bonus depreciation is gradually decreasing, the ability to claim 80% in 2023 remains highly advantageous, boosting cash flow and reducing tax liabilities. This provision offers immediate financial relief and encourages investment in new equipment and technology, which are crucial for maintaining competitiveness and efficiency in today's agricultural landscape.

Ensuring the agricultural community flourishes under these beneficial tax provisions is crucial, whether it involves strategizing for future investments or enhancing current operations. Reach out to your CRI advisor today to embark on a journey of optimized financial health and strategic planning. We are dedicated to navigating our clients through these opportunities, empowering them to fully leverage their benefits amidst the tax regulation landscape's complexities.