Julie graduated from Purdue University with a Bachelor of Arts in Visual Communications Design. From a young age Julie has always had an interest in art that later turned into career in brand development for various companies throughout the Northwest Indiana area. Julie joined the FBi marketing team in 2021 as a Marketing Content Creator. You might get a phone call from her to schedule a visit to your FBi building so she can take pictures for our website or you might get a brochure she design from one our FBi sales reps. One way or another Julie loves to help the marketing team in any way she can. In her free time, Julie enjoys walking her dog and spending time with friends and family.
We recommend taking a look to read all the tax benefits and rules that apply to farming. For this article, we picked out the information that applies specifically to building a pole barnon your property.
We want to make sure you are prepared for the upcoming tax season by reviewing:
What property qualifies
How to write off your new barn
Tax tips and best practices
1. What Property Qualifies
Let’s first clarify what the IRS considers a farming business. Both of these apply:
You cultivate, operate, or manage a farm.
Your goal is to generate profit or gain as either the owner or a tenant.
For a farm buildingto qualify as a tax write-off, your property must meet all the following requirements.
It must be eligible property
Eligible property includes purpose-built structures to house, raise, and feed a particular type of livestock and its produce. And buildings meant to house the equipment, including any replacements needed to accommodate, raise, or feed the livestock, are also eligible.
A single-use structure is a specifically designed and engineered building to support livestock or store produce. A general-use farm building is one built to house tractors, equipment, and more.
Most of our customers fall into the “general-use farm building” category, and you can write off your building over a 20-year or 25-year period.
Most farmers will choose the 20-year option; however, if you have a slower year, you can opt into the 25-year plan. But once you select a plan, you must stick with it throughout the depreciation process.
To learn more about the write-off recovery period for other agricultural expenses, such as a grain bin, machinery, tile drainage, trucks, horses, fences, and more, check out this Depreciation: Class Life document from RuralTax.org
One of the biggest takeaways from our conversation with Mr. Ward is that he brought to our attention that the Tax Cuts and Jobs Actmade it possible for farmers to completely write off their general-farm buildings 100% once the construction was completed.
The 100% bonus depreciation can be applied to any completed post-frame building and placed in service before January 1, 2023. After that, first-year bonus depreciation goes down as follows:
80% for property completed during the 2023 calendar year
60% for property completed during the 2024 calendar year
40% for property completed during the 2025 calendar year
20% for property completed during the 2026 calendar year
So to all our Ag customers that completed their building this year, congratulations! You can opt into the First-Year Bonus Depreciation plan, and completely write off your building on your taxes 100%. To all the customers with a building under contract and it will be completed during 2023, you can write off 80% of it on your taxes in the first year and then the remaining 20% over a 20-year period.
Fun fact! The First-Year Bonus Depreciation option also applies to improvements made to any original general-use farm building. Examples include a new roof, finished steel liner, security system, HVAC, and fire protection system. This option does not extend to any add-ons you build onto the building.
The First-Year Bonus Depreciation option is just that, an option. You don’t have to go this route if you choose not to. We’re just here to let you know it’s available.
Now that you know whether your building qualifies as a structure or building and what your write-off timeline will look like, your next step is to complete a 4562 Form.
You must complete and attach it to your tax return every year throughout the depreciation process.
If you need help filling out the form, there are several resources online that will take you line-by-line. Here are a few to help get you started:
The 4562 Form is to be used for any depreciating asset, not just a building. You can use it for any purchases or improvements made to your farm property with a useful life of more than a year. Examples are machinery, equipment, or livestock.
3. Tips to Help Set You Up for Success
Filing your taxes can feel like a daunting and overwhelming task for most, especially small business owners, such as Farmers in your case. Here are a few tips to help you feel prepared:
Be organized and keep records of all your expenses Your recordkeeping system should include a summary of your business transactions, which shows your gross income and any expenses, deductions, and credits you are reporting. In addition, you must keep supporting documents, such as invoices and receipts, for purchases, sales, payroll, and other business transactions.
Read through the Farmer’s Tax Guide This resource is your best friend. It will answer all your questions and provide detailed examples to help you better understand the rules and how they apply to you.
File early The sooner your taxes are filed, the more assured you can be that they were correctly submitted and ahead of the deadline. This way, you won’t get any surprises from the IRS later. Filing earlier may also lead to a quicker turn-around time on your refund.
Will You Be Using the First-Year Bonus Depreciation?
Your structure/building isn’t the only thing you can designate as a tax write-off.
Take the time to learn how to make the system work for you and your family farm. Then, when you’re ready to invest in a new barn, FBi Buildings be here to help!