The One Big Beautiful Bill Act (OB3), signed into law by President Donald Trump on July 4, 2025, made sweeping changes to tax provisions across all industries. As the dust settles and legislative changes begin to take effect, several OB3 areas specific to agribusiness may offer farmers more control over their taxable income.
Given the current state of the farm economy, cash flow preservation will be increasingly imperative. Exploring the efforts to realize the benefits from tax planning via the updated tax law could be the difference in keeping the family legacy plowing forward.
Below is an overview of some of the more relevant legislative changes impacting taxable income.
- Revitalization of bonus depreciation, offering immediate 100% expensing of various equipment, grain bins, and certain land improvements
- Expanded Section 179 expensing allowing more depreciation flexibility
- Internal Revenue Code (IRC) §163(j) interest expense limitations were given more favorable rules
- Options with regards to IRC §174 capitalization of research and development (R&D) costs were improved
- Enhanced Standard Deduction
- Increased Child Tax Credit
While these highlighted provisions are not exhaustive, they are crucial in helping to increase or decrease deductions, allowing farmers to land within a desired taxable income range, ultimately allowing them to plan out the amount of tax to be paid.
Farmers and their tax professionals should consider these new tax tools, along with traditional tax deductions available to farmers, to model multiple years of taxable income (rather than a traditional one-year plan) and avoid maximizing deductions in a year where economic conditions may already establish tax losses.
A multiyear tax plan can decrease taxable income over multiple tax years, which may reduce cash outflow to cover income taxes and increase cash flow to reinvest back into farming operations. The main rationale for the multiyear approach is that farmers have several options to reduce taxable income outside of immediate one-time deductions, such as bonus depreciation. Farmers can reduce taxable income via the expensing of prepaid fertilizer/seed/chemical, land leveling as a soil and water conservation expense, and IRC §199A(g) deductions allocated to farmers from cooperatives.
Bonus Depreciation, §179, & §163(j)
One of the broader changes for qualified property acquired and placed in service after January 19, 2025 to tax policy lies in bonus depreciation. OB3 makes 100% bonus depreciation permanent. It also allows taxpayers to elect to expense 100% of property with a modified accelerated cost recovery system (MACRS) life of 20 years or less or take a reduced bonus depreciation rate of 40% or 60% depending on the type of property placed in service after January 19, 2025.
Coinciding with enhanced bonus depreciation options, expanded §179 expensing also allows for more precision when deciding how much depreciation expense operators would like to use in reducing taxable income. Prior to the legislative adjustment, taxpayers were allowed to expense $1,250,000 with an asset purchase limitation of $3,130,000, subject to business income limitations. Starting in 2025, the §179 deduction limitation was increased to $2,500,000 on $4,000,000 in asset additions.
Given the increases in capital investments for farms and the prevalence of equipment roll offerings by various dealership groups, the enhanced §179 guidance better supports equipment expensing flexibility for larger farm groups.
In addition, OB3 changed the rules surrounding the limitation on the deduction for business interest expense, or the §163(j) limitation. It reinstates earnings before interest, taxes, depreciation, and amortization (EBITDA), allowing businesses to add back depreciation and amortization to their adjusted taxable income (ATI) calculation in determining the interest expense limitation, ultimately increasing the amount of interest expense farmers can claim.
Section 174: Amortization of Research and Experimental Expenditures
Another widespread change is the tax treatment of research and experimental (R&E) costs under IRC §174. Prior to OB3, this policy stated, “in the case of a taxpayer’s research or experimental expenditures for any taxable year…the taxpayer shall charge such expenditures to a capital account and be allowed an amortization deduction of such expenditures ratably over the five-year period beginning with the midpoint of the taxable year in which such expenditures are paid or incurred.”
Taxpayers can now elect to deduct all §174 domestic R&E costs immediately. For taxpayers with previously capitalized costs, they can choose to either deduct the residual value in the first taxable year after December 31, 2024, or they can ratably spread the expenses over a two-year period beginning in 2025. For qualifying small businesses that have previously capitalized these costs, they have the option to amend previous returns and immediately expense previously capitalized costs.
Continued Considerations
Post-OB3, there is a road map to control taxable income for farmers. The perspective of “deduct everything immediately” may not be the optimal answer. Farmers have a unique opportunity to consider their capital expenditures over multiple years and anticipate several developments (including government subsidies, possible §199A(g) deductions allocated to them by cooperatives, possible lower patronage allocations from cooperatives as the punitive impacts of §163(j) and §174 reverse), along with the use of more traditional deductions such as the expensing of prepaid fertilizer, seed, and chemicals, and the possible expensing of land leveling costs.
Farmers may be able to pull different levers to adjust the timing of deductions in order to establish a fairly constant level of taxable income between 2025 and 2028 and achieve a desired effective tax rate. If farmers can set their tax rate through the planned use of deductions over a multiyear period, such planning can help alleviate uncertainty around unknown tax liabilities. With taxes planned for, farmers can focus on improving their farm, increasing yields, and boosting the overall cash flow provided from their farm assets.
As a possible example, consider a farmer with the following traits:
- Believes commodity prices will improve over the next three years
- Pursues increased farm crop storage capacity
- Needs to precision-level farmland in an effort to increase crop yield
- Anticipates possible larger §199A(g) allocations from cooperatives, as cooperatives can lower their taxable income through bonus depreciation and the reductions in the punitive impacts of §163(j) and §174
Based on the above, a farmer may choose to delay immediate expensing of depreciable equipment in order to establish sufficient taxable income to benefit from the cooperative’s allocation of §199A(g), while also maximizing the benefit of the lower graduated individual income tax rates. The farmer can use expensing of prepaid fertilizer/seed/chemical and land leveling costs to bring taxable income down to desired levels in lieu of bonus depreciation.
Traditional MACRS tax depreciation can be combined over time with §199A(g) allocations, the expensing of prepaid fertilizer/seed/chemical, and leveling costs to offset improving crop prices over a multiyear period. The farmer can also work to adjust the timing of planned capital expenditures and possibly time bonus depreciation or the use of §179 expensing through the purchase of farm equipment in future years when commodity prices are potentially higher than today.
A multiyear approach could allow the farmer to increase the benefits of the graduated individual income tax rates, establishing a known tax result over multiple years, allowing cash to be deployed toward other aspects and improving long-term farm operations and profitability.
Estate Tax Exemption Limitation & Qualified Farmland Sale Deferral
The above focuses on managing taxable income. While not directly related, it may help farmers to keep in mind that OB3 also included enhancements with respect to estate planning and the disposition of farmland.
Within OB3, the estate tax exemption limitation was permanently expanded to the previously increased thresholds provided within the Tax Cuts and Jobs Act (TCJA), indexed for inflation. As of 2025, the estate tax exemption limitation will now be $15 million per person, or $30 million for a married couple, after making a portability election. Given the previous expectation of the limit reducing in half, this will allow legacy agribusinesses more room to pass farm assets to future generations while incurring less estate tax.
For legacy farmers and farmland holders looking to sell their land, the §1062 amendment included in OB3 provides the opportunity for landowners to defer the capital gains tax on their gain from qualifying farmland sales over a four-year period. As the current generation of farmers moves closer to retirement and the farm economy forces smaller farms to sell, this provision would allow qualified farms to defer tax implications over a four-year period.
How Forvis Mazars Can Help
OB3 offers agribusinesses potential benefits through recent tax law changes: farmers can utilize new guidance to manage their taxable income and improve cash flow. Strategy is key and opting for a multiyear tax planning approach may support farm operations and help enhance tax deduction benefits over time.
Forvis Mazars understands agribusiness industry challenges and best practices. Our federal tax specialty, sustainability, and transaction advisory services are available to help agribusiness leaders manage costs, create efficiencies, and reduce their tax exposure. For more information on the above tax considerations and more, please reach out to a professional at Forvis Mazars.