How to Deduct Tractors as a Farm Expense

How to Deduct Tractors as a Farm Expense
Farmers can deduct tractors from their taxes.

Step 1

Purchase your tractor. If your tractor is a gift or was inherited, it does not qualify as a deduction. Purchase of a tractor from a spouse, parent or offspring is not considered a qualifying purchase. Keep all receipts that pertain to the tractor.

Step 2

Prove that your farm is a business and not a hobby. If your farm fails to sell products such as crops, livestock, the IRS may deem your farm a hobby and not a business. The IRS does not allow deductions for a hobby; two-thirds of your income must come from farming to qualify as a business.

Step 3

Determine how much money you can deduct for your tractor. As of 2011, you can deduct up to $500,000 for farm equipment under Section 179 of the IRS code. You can only take a 179 deduction the year you put the tractor into service. If your total farm equipment purchases for one year total $2 million or more, you do not qualify for the Section 179 deduction. However, your tractor will qualify for depreciation. For example, if your tractor cost $600,000, you could deduct $500,000 and the remaining $100,000 could be claimed as depreciation. This only qualifies the first year the tractor was put into service.

Step 4

Download 1040 (Schedule F) and form 4562 (Depreciation and Amortization) from the IRS website. Fill out all forms according to directions. Section 1 of Form 4562 includes Section 179 Deduction.