John Deere equipment is a depreciable business asset, not a tax deduction you take all at once

When you buy a John Deere tractor, combine, or other farm equipment, you cannot deduct the full purchase price in the year you buy it. Instead, the IRS treats it as a capital asset — something that will produce income over multiple years — and you recover the cost gradually through depreciation deductions on your tax return.

How much you can deduct each year depends on the equipment type, how you use it, and which depreciation method you choose. A new tractor depreciates differently than a used one. Equipment used only in your farming business depreciates differently than equipment you also use personally. Understanding these rules matters because choosing the wrong depreciation method can cost you thousands in deductions you could have claimed.

The IRS publishes specific depreciation schedules for farm equipment in Publication 946. John Deere equipment falls into categories based on what it does — a tractor is typically a five-year property, a combine is seven-year property, and some implements are shorter or longer depending on their function.

Key Takeaways

  • John Deere equipment is depreciated over five to seven years depending on the type, not deducted in full the year you purchase it.
  • You must use the equipment in your farming business to claim depreciation; personal use disqualifies the deduction.
  • Section 179 expensing and bonus depreciation may let you deduct some or all of the cost in the year of purchase, but these have income limits and phase-out rules that change yearly.
  • Used equipment depreciates the same way as new equipment, but your basis is what you actually paid, not the original manufacturer price.
  • Keeping purchase receipts, serial numbers, and records of when the equipment entered service is required if the IRS audits your depreciation claims.

How depreciation works for farm equipment

Depreciation is a non-cash deduction — you do not spend money in the year you claim it, but you reduce your taxable farm income. If you buy a $100,000 tractor and depreciate it over five years using the straight-line method, you deduct $20,000 per year for five years (ignoring salvage value, which the IRS ignores for most farm equipment).

The IRS requires you to use the Modified Accelerated Cost Recovery System (MACRS) for farm equipment placed in service after 1986. MACRS has two main methods: straight-line (equal deductions each year) and accelerated (larger deductions early, smaller later). Most farmers use straight-line because it is simpler and produces the same total deduction over time.

You report depreciation on Form 4562 (Depreciation and Amortization), which you attach to your Schedule F (Profit or Loss from Farming) when you file your tax return. The form requires you to list each piece of equipment, its cost basis, the date placed in service, the recovery period, and the depreciation method. If you buy multiple pieces of equipment in the same year, you list them all on one form.

Section 179 expensing and bonus depreciation

Two special rules can let you deduct equipment faster than regular depreciation allows. Section 179 expensing lets you deduct up to a certain dollar amount of equipment cost in the year you place it in service, instead of spreading it over five or seven years. Bonus depreciation lets you deduct a percentage of the cost (often 100 percent for new equipment) in year one, then depreciate the remainder.

Section 179 has an annual limit that changes each year — for 2024, the limit is $1,220,000, but this phases out if you buy more than $4,880,000 in equipment in a single year. Bonus depreciation also has limits and phases out based on when the equipment was manufactured. Both rules require the equipment to be used more than 50 percent in your farming business.

These rules are powerful but complex. If you buy $500,000 in John Deere equipment and your farm income is only $80,000, claiming Section 179 on all of it would create a loss you cannot fully use in that year. A tax professional who works with farmers can model whether Section 179, bonus depreciation, or regular depreciation produces the best outcome for your specific situation.

Used John Deere equipment and basis

Used equipment depreciates the same way as new equipment — over the same number of years using the same methods. The difference is your basis, which is what you actually paid for it, not what it originally cost when new.

If you buy a used John Deere tractor for $40,000, your basis is $40,000, even if the original owner paid $120,000 ten years ago. You depreciate that $40,000 over five years. If you trade in an old tractor toward the purchase of a new one, your basis in the new tractor is reduced by the trade-in value — if you pay $80,000 cash and trade in equipment worth $20,000, your basis is $100,000, not $80,000.

Keep the bill of sale or purchase agreement showing what you paid. If you later sell the equipment, the IRS will ask for proof of your original basis to calculate whether you have a gain or loss on the sale.

When equipment is not fully deductible

Equipment must be used in your farming business to may have access to for depreciation. If you buy a John Deere tractor but use it 40 percent for farming and 60 percent for personal use or a non-farm business, you can only depreciate 40 percent of the cost.

The IRS looks at actual use, not intended use. If you buy a tractor planning to use it only for farming but then use it to clear your driveway or haul personal items, you have mixed-use equipment. You must track the business percentage and depreciate only that portion. This is one reason farmers keep detailed records of equipment use — if audited, you need to show how many hours or what percentage of time the equipment was used for farming.

Equipment used in a farm business that is not your primary occupation (a side farm) still qualifies for depreciation, but the farm must show a profit in at least three of five years to be treated as a business rather than a hobby. Hobby farms have different depreciation rules and cannot claim certain deductions.

Repairs versus improvements and when to capitalize

A repair keeps equipment working as it did before — replacing a worn belt, fixing a hydraulic leak, or repainting a rusted panel. Repairs are deducted in full in the year you pay for them on Schedule F, not depreciated.

An improvement makes the equipment better than it was before — adding a cab to an open tractor, upgrading the engine, or installing new hydraulics that increase capacity. Improvements are capitalized, meaning you add the cost to your basis and depreciate it over the remaining useful life of the equipment or the recovery period, whichever is shorter.

The line between repair and improvement is not always clear. Replacing an engine that failed is usually a repair. Replacing an engine with a newer, more powerful one is usually an improvement. If you spend more than a few hundred dollars on a single repair, keep the invoice and consider whether it improved the equipment's value or capacity — if it did, you may need to capitalize it instead of deducting it when ready.

Selling or trading in John Deere equipment

When you sell equipment you have been depreciating, you must report the sale on Form 4797 (Sales of Business Property). The gain or loss is the sale price minus your adjusted basis — the original cost minus all depreciation you have claimed.

If you bought a tractor for $100,000 and depreciated $60,000 over six years, your adjusted basis is $40,000. If you sell it for $45,000, you have a $5,000 gain. If you sell it for $35,000, you have a $5,000 loss. Gains are taxed as ordinary income (or capital gain if you held it more than one year, though farm equipment is usually ordinary income). Losses reduce your farm income.

If you trade in equipment toward a new purchase, the trade-in value is treated as a sale of the old equipment for tax purposes. You still report the gain or loss on Form 4797, even though you did not receive cash. The dealer's paperwork should show the trade-in value clearly.

Record-keeping for equipment depreciation

The IRS requires you to keep records that support every depreciation deduction. For each piece of John Deere equipment, you need: the purchase date and price, the date it was placed in service, the serial number or other identifying information, the depreciation method used, and the recovery period claimed.

If the equipment is used partly for business and partly for personal use, keep records of how you calculated the business percentage — mileage logs, time sheets, or photos showing the equipment in use. If audited, the IRS will ask for these records before accepting your depreciation deduction.

Many farmers photograph equipment at purchase and keep photos with the purchase receipt. Others maintain a spreadsheet listing all equipment, cost, date in service, and annual depreciation. Either approach works as long as you can produce the information quickly if asked. Digital records are fine, but keep them organized — the IRS does not accept "I have the receipts somewhere" as proof.

Frequently Asked Questions

Can I deduct the full cost of a John Deere tractor the year I buy it?

Not usually. You depreciate it over five years using regular depreciation. However, Section 179 expensing or bonus depreciation may let you deduct some or all of the cost in year one if your farm income is high enough and the equipment meets the rules. A tax professional can tell you whether these explore to your situation.

What if I buy used John Deere equipment instead of new?

Used equipment depreciates the same way as new equipment — over the same number of years. Your basis is what you paid for it, not what it cost originally. You still report it on Form 4562 and claim depreciation each year.

Do I have to depreciate equipment, or can I choose not to?

If the equipment is a business asset, you must depreciate it. You cannot choose to deduct it all at once or skip the deduction. However, you can choose which depreciation method to use (straight-line or accelerated) and whether to claim Section 179 or bonus depreciation in the year of purchase.

What happens if I use a tractor for both farming and personal use?

You can only depreciate the business-use percentage. If you use it 70 percent for farming and 30 percent for personal use, you depreciate 70 percent of the cost. You must track actual use and be able to show the IRS how you calculated the percentage if audited.

If I sell John Deere equipment, do I owe tax on the sale?

You report the gain or loss on Form 4797. The gain is the sale price minus your adjusted basis (original cost minus depreciation claimed). Gains are taxed as ordinary income. Losses reduce your farm income. You must report the sale even if you traded the equipment in toward a new purchase.