Are tractors eligible for bonus depreciation under current IRS rules, and how does this affect their depreciation schedule?
Ask Blue J any tax question, then go deeper. Follow up, add client-specific context, and explore the sources behind every answer with Blue J’s generative AI solution for tax research.
Yes, tractors are generally eligible for bonus depreciation under current IRS rules, and this eligibility significantly affects their depreciation schedule.
1. Eligibility of Tractors for Bonus Depreciation
Bonus depreciation is governed by IRC §168(k), which allows taxpayers to take an immediate first-year deduction on the cost of qualifying property, including most farm equipment such as tractors, provided certain requirements are met.
Qualifying Property
- To qualify for bonus depreciation, property must:
- Be tangible property depreciated under MACRS with a recovery period of 20 years or less.
- Be new or used (as long as it is new to the taxpayer and meets acquisition requirements).
- Be acquired and placed in service within the applicable timeframes.
- Not be required to be depreciated under the Alternative Depreciation System (ADS), unless an exception applies.
Tractors are classified as 5-year MACRS property under asset class 01.1 (Agriculture: machinery and equipment) and asset class 00.21 (Airplanes, except those used in commercial or contract carrying of passengers or freight, and all helicopters), both of which have a recovery period of 5 years under MACRS.
Current Bonus Depreciation Rate
- For property acquired and placed in service after January 19, 2025, the bonus depreciation rate is 100% (per the One Big Beautiful Bill Act, P.L. 119-21).
- For property acquired and placed in service before January 20, 2025, the rate is 40% in 2025, but this is superseded by the new law for property acquired after January 19, 2025.
Acquisition Requirements
- The tractor must be acquired by purchase (not by gift or inheritance).
- The original use of the tractor must begin with the taxpayer, or, if used, it must be new to the taxpayer and not previously used by the taxpayer or a related party within the last five years.
2. Effect on Depreciation Schedule
Standard MACRS Depreciation (Without Bonus)
- Tractors are depreciated over 5 years using the 200% declining balance method under MACRS, switching to straight-line when advantageous, with a half-year convention.
- The standard MACRS schedule for 5-year property (without bonus) is:
- Year 1: 20%
- Year 2: 32%
- Year 3: 19.2%
- Year 4: 11.52%
- Year 5: 11.52%
- Year 6: 5.76%
With Bonus Depreciation
- If bonus depreciation is claimed, the taxpayer deducts 100% of the tractor’s cost in the year it is placed in service (for property acquired and placed in service after January 19, 2025).
- After claiming bonus depreciation, the basis of the tractor is reduced to zero for regular depreciation purposes, so no further MACRS depreciation is available in subsequent years.
Order of Deductions
- If Section 179 expensing is also used, Section 179 must be applied before bonus depreciation, and bonus depreciation is applied before regular MACRS depreciation.
Example
Suppose a farmer purchases a new tractor for $100,000 in February 2025:- If the tractor is acquired after January 19, 2025, and placed in service in 2025, the farmer may claim a 100% bonus depreciation deduction of $100,000 in 2025.- The tractor’s basis for depreciation is reduced to zero, so no further depreciation deductions are available in later years for this asset.- If the farmer elects out of bonus depreciation, the tractor would be depreciated over 5 years using the MACRS schedule above.
3. Other Considerations
- Section 179: The farmer may also elect to expense the cost under Section 179, subject to annual limits ($1,250,000 in 2025, phase-out at $3,130,000).
- Recapture: If the tractor is disposed of, any gain up to the amount of depreciation (including bonus) is recaptured as ordinary income.
- Election Out: Taxpayers may elect out of bonus depreciation for any class of property for a given year if they prefer to use regular MACRS depreciation.
4. Summary Table
5. Conclusion
Tractors are eligible for bonus depreciation under current IRS rules. For tractors acquired and placed in service after January 19, 2025, a 100% bonus depreciation deduction is allowed, enabling the entire cost to be written off in the year the tractor is placed in service. This eliminates future depreciation deductions for that asset, as the basis is reduced to zero. Taxpayers may elect out of bonus depreciation if they prefer to depreciate the tractor over five years using MACRS. Section 179 expensing is also available, but must be applied before bonus depreciation.
Was this answer helpful?
What Blue J customers are saying
“We are excited to use Blue J to elevate the initial work product our team is able to produce."
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We had used Checkpoint for a long time but found it wasn’t particularly well-used in our practice."
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"We find this tool to be a game-changer for us and our clients.”
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“Blue J is an exciting technology because it enables the practitioner to remain in the driver’s seat of the analysis."
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"We wanted to have a tool that people were using at all staff levels."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
