Lower bonus depreciation is among the challenges that tax professional Jared Asumendi’s agricultural clients face this year.

The federal tax benefit is dropping at the same time farmers face a mix of still-high input costs, lower commodity prices and in some cases higher reportable income from past seasons, he said.

“The landscape is a lot more difficult,” said Asumendi, president of Asumendi & Kincheloe in Nampa, Idaho.

Discussions range from recent and anticipated farm income and asset purchases to “how much are we going to be spending in the growing year if we take on another 200 acres?” Asumendi said. “Those are all conversations we have.”

A qualified asset’s cost can be depreciated over its useful life. An alternative is bonus depreciation, through which a bigger benefit is taken the first year.

Bonus depreciation’s first-year deduction was 50% until the Tax Cuts and Jobs Act of 2017 increased it to 100% for 2018-22. It was 80% in 2023 and is 60% this year. It is slated to drop to 40% in 2025, 20% in 2026 and zero in 2027.

“It’s wishful thinking, but we hope to see some changes in bonus depreciation,” Asumendi said.

Bonus depreciation helps farmers invest in their businesses, and earlier higher limits came in handy given strong net incomes and inflation, he said. Recent lower limits could create tax problems, depending on a farmer’s situation.

“A lot of this income is going to be received in the spring of the following year,” Asumendi said. “So if you had a really good year in 2023, your 2024 might look really good on a book level even though the prices that you’re going to get for your 2024 commodities are going to be lower.”

The 2017 tax law increased the maximum annual deduction and phase-out threshold under Internal Revenue Code Section 179.

Like depreciation, Section 179 applies in the year a qualified asset is placed into service. Unlike depreciation, the entire value can be written off the first year, dollar limits apply, and it cannot be used to create a loss.

The limit on Section 179 was $1.16 million in 2023, and is $1.22 million in 2024 and $1.25 million in 2025. The benefit reduction threshold was $2.89 million in 2023, and is $3.05 million in 2024 and $3.13 million in 2025.

“Section 179 is a really good tool for a majority of our clients who are in asset-heavy businesses,” Asumendi said. “Farming is a pretty capital-intense business.”

Some sizable farms can rack up $3.05 million in qualified asset purchases fairly quickly, and so pursue an alternative such as bonus depreciation.

Other topics discussed with farmers recently include setting up a small insurance company under Internal Revenue Code section 831(b), and using studies to document residual nutrients in soil and potential related deductions, Asumendi said.

He has seen some ag practitioners who qualify for a 20% small business deduction — currently slated to sunset at the end of 2025 — miss it on self-prepared returns.

Many strong client relationships are with people who “want to come in and do this planning throughout the year,” he said. “Taxes really should be the result of a year’s worth of planning.”