Section 179 deductions for farm machinery and equipment in 2026

Section 179 of the Internal Revenue Code allows the costs of qualifying assets to be deducted from gross income in the first year of use instead of depreciated over time. This offers farmers a way to save money on some farm machinery, equipment, software and building purchases if they’re purchased before the end of the calendar year. The One Big Beautiful Bill Act (OBBBA), passed earlier in 2025, expands Section 179 benefits. 

Here's what to know to make informed decisions and take maximum advantage of the potential tax savings offered under this section of the Code.

How does Section 179 work?

Originally enacted in 1958 to encourage business investment, today’s farmers may take advantage of Section 179 of the Code to deduct the full purchase price of a business asset like a tractor or combine from gross income. The OBBBA increased the deduction spending maximums permitted under Code Section 179. For the 2026 tax year, the maximum deduction cap will be increased to $2,560,000. This amount is reduced by the cost of applicable property placed in service that exceeds $4,090,000 for 2026. There is an additional cap of $32,000 for utility vehicles that qualify as applicable property. When applying Section 179, always confirm final official numbers with your tax professional, as these amounts will be inflation-adjusted in future years.

What property qualifies for a Section 179 deduction?

• Farm machinery, equipment, and some vehicles
• Computers, software, and office equipment
• Breeding livestock
• Grain bins and other farm buildings for specific use (multi-use buildings don’t qualify)
• Tangible personal property that doesn’t include buildings or structural components of a building
• Qualified real property or improvements to nonresidential real property (general real estate does not qualify)
• Purchased property used in the active conduct of a business more than 50% of the time
• Property acquired from an unrelated person

When and when not to use Section 179

Section 179 provides buyers with options and flexibility to decide which purchases to include and which ones to reserve for future tax benefits. In year-over-year tax planning, farmers and ranchers should work with their tax professionals to determine how and if to divide up the Section 179 deduction for specific purchases.

While the tax incentives under Section 179 are appealing, farmers and ranchers should avoid depending on it too much, especially under circumstances when you may be passing farm assets down to the next generation, according to Steve Hamilton, JD, of the Nationwide Retirement Institute.

“Section 179 is certainly a powerful tool for farmers, but it also comes with some items to watch out for. If you sell the asset on which you took a Section 179 deduction prior to the end of its useful life, you may be subject to recapture rules,” he said. “If planning to transition your operation to the next generation, you may be building up a tax wall that can hinder your ability to effectively and efficiently transition assets how you desire. And remember, you still have to pay off any loans used to purchase the equipment and machinery. It is crucial that you are working with a tax professional as well as considering your cash flow, potential risks, and future plans.”

How can I learn more?

While you connect with your tax professional to determine if Section 179 deductions, bonus depreciation or other deductions are right for you, find more helpful information in the IRS Farmer's Tax Guide. Find other ideas to fuel smart financial planning while protecting and strengthening your operation at AgInsightCenter.com.