New equipment purchases are deductible up to $2 million.
Due to the difficult circumstances in which farmers must try to make a profit, the IRS allows them specific types of tax write-offs. Farmers generally have to hire professionals to complete their taxes to ensure that they claim the maximum amount of deductions. A few farm tax write-offs include farm machinery purchases, building and equipment depreciation, death of a purchased animal, and crop loss.
Farm Machinery Purchase
Changes to Section 179 of the tax code allow farmers to claim 100 percent depreciation of new assets. This can include any equipment, such as balers, rakes, tractors, wagons, plows, and other types of machinery. The caveat to this write-off, however, is that the farmer can only deduct an amount equal to his net income. Also, the farmer must not have purchased more than $2 million of equipment that year, as purchases over this limit begin to reduce the deductible amount.
Depreciation of Equipment and Buildings
The general way to determine the depreciation of farm equipment is to subtract the cost of the machinery from its salvage value and divide it by its useful life. Typically, the useful life is determined by the expectations of the manufacturer. For example, Case International may claim that their balers have a useful life of ten years. Salvage value generally indicates the price the dealer will give for the piece of equipment if it was traded in that day. The depreciation of farm equipment and buildings is a significant tax write-off.
Death of Purchased Animal
In some cases, the death of an animal can be claimed as a tax write-off. In accounting terms, you can claim the death of an animal if you have a tax basis in it. One example is if the animal was purchased and therefore a capitalized expense. Another way the death of animal can be deducted is if the animal was part of an inventory that determined the farmer's income.
Crop Loss
Crop loss can be claimed in certain circumstances. In the cash accounting method, crop loss can not be deducted if the cost of planting the crops was already claimed as a write-off. However, if you used insurance money to plant another crop or buy another standing crop, this counts as property replacement and can be deducted.
Tags: death animal, useful life, claimed write-off, depreciation farm, depreciation farm equipment