Farm tax breaks most people don’t know about

If you’re out there turning dirt into crops, hauling hay, or raising livestock, you already know farming isn’t for the faint of heart. But what you might not fully know is just how many tax moves are built into the system that can help you tilt the playing field in your favor. Some are large, some are subtle — but all worth knowing. Let’s dig in.

1. File with the right form

If you run a farm as a business (yes, you are running a business), you report your income and expenses on Schedule F of Form 1040. By using Schedule F, you position yourself to take business-expense deductions, depreciate equipment, and treat the farm as the operation it really is — not just “the family hobby.”

2. Deduct ordinary and necessary expenses

The IRS defines business expenses as “ordinary and necessary” in your trade. Farming qualifies. Things like fuel, fertilizer, feed, repairs, and wages paid to hired help can often be deducted. Just remember — good records make good deductions.

3. Prepaying supplies can be a smart move

If you’re on the cash method of accounting (common for farmers), you may deduct some prepaid supplies such as feed or fertilizer, even if you’ll use them later. The IRS generally limits this deduction to 50 percent of your total other deductible farm expenses for that year — still a great way to help smooth out income and expenses.

4. Conservation work can lower your taxes

Investing in conservation efforts — soil improvements, planting cover crops, managing drainage, or setting aside land for conservation — may let you deduct related expenses up to 25 percent of your gross farm income. Many states also offer agricultural property-tax exemptions for active farmland.

5. Look for tax credits, not just deductions

Deductions lower taxable income. Credits reduce your tax bill dollar for dollar. Some worth exploring:

• Fuel tax credit for off-highway use of gasoline or diesel.
• Renewable-energy credits for installing solar panels, wind systems, or biomass.
• State-level credits for new farmers, equipment investments, or land transfers.

6. Use Section 179 and bonus depreciation

If you’ve bought new equipment or built new facilities, you can depreciate those assets over time or, if eligible, use Section 179 to write off a large chunk upfront. For 2025, farmers can deduct up to $2.5 million, with 100 percent bonus depreciation available for qualifying property.

7. Plan now for succession and estate taxes

Keeping the farm in the family starts with good planning. Farmers benefit from the high federal estate-tax exemption and from the step-up in cost basis that resets property value for heirs, reducing capital-gains exposure when land is eventually sold.

8. Treat your farm like the business it is

The IRS wants to see a profit motive. If your operation looks more like a hobby, you could lose access to key deductions. Maintain records, keep a business plan, and run your farm with intent — it pays off at tax time.

If you haven’t reviewed your tax strategy lately, you’re likely leaving money on the table. The agricultural tax code is full of opportunities to improve your cash flow and build long-term wealth. Use them wisely and work with a tax professional who knows the farm business as well as you do.

Sources cited:

1. Internal Revenue Service. (2024). Publication 225: Farmer’s Tax Guide (2023 ed.). https://www.irs.gov/forms-pubs/about-publication-225

Official IRS resource detailing farm income, Schedule F, depreciation rules, and conservation deductions.

2. U.S. Department of Agriculture. (2024). Farmer’s Tax Resources. Farmers.gov. https://www.farmers.gov/your-business/taxes

USDA overview of farm-related tax obligations and deduction opportunities.

3. Ambrook. (2025). 8 Easy-to-Miss Tax Deductions for Farmers in 2025. https://ambrook.com/education/taxes/8-easy-to-miss-tax-deductions-for-farmers-in-2025

Explains practical strategies like prepaid supplies and equipment write-offs.

4. SmartAsset. (2024). Understanding Agricultural Tax Exemptions. https://smartasset.com/taxes/understanding-agricultural-tax-exemptions

Covers state-level property-tax exemptions and conservation-use designations.

5. American Farm Bureau Federation. (2024). Tax and the Family Farm. https://www.fb.org/issue/tax-reform

Summarizes estate-tax thresholds and policy considerations for family farms.

6. U.S. House Committee on Ways and Means. (2025, June 3). American Farmers Benefit from the “One Big Beautiful Bill.” https://waysandmeans.house.gov/2025/06/03/american-farmers-benefit-from-the-one-big-beautiful-bill/

Describes 2025 updates to Section 179 and bonus-depreciation limits.

7. Landmark CPAs. (2024). Farming Tax Breaks: Common Deductions and Credits. https://www.landmarkcpas.com/farming-tax-breaks/

Outlines common credits such as the fuel-tax refund and state incentives for ag businesses.