Depreciation – Down on the Farm

The new law shortens the depreciation period for machinery and equipment that is used in a farming business from seven to five years. This excludes grain bins, cotton ginning assets, fences, or other land improvements. The original use of the property must occur after December 31, 2017. This recovery period is effective for property placed in service after December 31, 2017.

Also, property used in a farming business and placed in service after December 31, 2017, is no longer required to be depreciated using the 150% declining-balance method. However, there is an exception if the property is 15-year or 20-year property, in which case the taxpayer should continue to use the 150% declining-balance method.

Also, farming businesses that elect out of the new 30% business interest deduction limitation must use ADS to depreciate any property with a depreciation life of 10 years or more, such as single-purpose agricultural or horticultural structures, trees or vines bearing fruit or nuts, farm buildings, and certain land improvements. This provision applies to taxable years beginning after December 31, 2017.

These rules, as well as other new depreciation rules created by the TCJA can be found on the IRS’s new Fact Sheet.