Farming into retirement: maximizing write-offs and avoiding the recapture trap

As the 2025 tax year winds down, many farmers are looking toward retirement. While the One Big Beautiful Bill Act (OBBBA) has brought back 100% bonus depreciation, the transition from active farming (Schedule F) to retirement requires careful navigation to avoid unexpected tax bills.

100% bonus depreciation in 2025

Under the new OBBBA rules, 100% bonus depreciation is officially back for property acquired and placed in service after January 19, 2025.

What qualifies?

Most farm assets with a recovery period of 20 years or less (machinery, equipment, and drainage tile). Even machine sheds can qualify. General-purpose sheds are 20-year property, while single-purpose structures (like hog or poultry houses) are 10-year property. Both are eligible for the full 100% write-off.

To claim this, the asset must be placed in service while you are still an active farmer filing Schedule F.

Understanding depreciation recapture

The biggest risk in retirement is recapture: when the IRS takes back the tax benefits you took in previous years. This happens when you stop using an asset for business. The recaptured depreciation is taxed as ordinary income immediately following a triggering event. 

What triggers recapture?

• Sale or exchange: Selling your equipment or buildings.
• Conversion to personal use: Moving your business tractor to your personal tractor for private gardening.
• Section 179 trap: If business use drops below 50% during the recovery period, Section 179 benefits must be recaptured as ordinary income.

The rental loophole: a better way to retire?

If you aren’t ready to sell everything, converting your assets to rental use can defer the tax bill.

• No immediate recapture: Simply stopping Schedule F and starting a rental activity (e.g., renting your land and shed to a neighbor) does not trigger immediate recapture.
• Ongoing depreciation: You can continue depreciating the property under rental rules (typically on a straight-line basis), keeping your tax liability lower.
• Tax deferral: Recapture is only triggered later if you eventually sell the property or convert it to purely personal use.

2025 retirement tax checklist

If assets are passed down through an inheritance, the basis is stepped up to fair market value, and the original depreciation recapture often disappears for the heirs.