7 Key Ways the OBBBA Impacts Farmers

Signed into law as P.L. 119-21, the One Big Beautiful Bill Act (OBBBA) brings significant changes to federal tax law – many with direct impacts on agricultural operations and rural communities.

Below are five provisions that may affect your farm business, plus two personal tax updates to keep in mind.

FARM OPERATION IMPACTS

1. Full Expensing for Equipment, Machinery & Farm Structures

OBBBA restores and makes 100% bonus depreciation permanent for qualified business property including farm machinery, equipment and certain plants. This means you can immediately deduct the full cost of new and used equipment placed in service after Jan. 19, 2025, rather than depreciating it over several years. The new provision (IRC §168(n)) allows first-year expensing for certain nonresidential property used in qualified production activities, such as new barns or processing facilities, if placed in service after July 4, 2025.

2. Installment Payment Option for Capital Gains on Farmland Sales

If you sell qualified farmland property to a qualified farmer, you may elect to pay the resulting capital gains tax in four equal annual installments rather than all at once. This new option (IRC §1062) helps with cash flow planning and succession transitions, provided the property remains in agricultural use for at least 10 years after the sale.

3.  Expanded Deductions & Credits for Rural Activities

OBBBA increases the Section 179 expensing limit for small businesses to $2.5 million (with a $4 million phaseout threshold) indexed for inflation, allowing more immediate write-offs for equipment purchases.

It also permanently increases the state and local tax (SALT) deduction cap to $40,000 through 2029, which may benefit farmers in high-tax states. But be aware of the phase down-for high incomes. After 2029, this deduction reverts to $10,000.

There are enhancements to the low-income housing tax credit and opportunity zone programs, which may support rural housing and community development projects.

4. Immediate Deduction for Domestic Research & Development

OBBBA allows full and immediate expensing of domestic research and development (R&D) expenditures, including on-farm research and innovation, which reverses the prior requirement to amortize these costs over five years. This change is effective for tax years beginning after Dec. 31, 2024, and includes a catch-up deduction for unamortized expenses from 2022–2024, providing a substantial one-time deduction opportunity in 2025. Opportunities like fertility deductions and R&D credits can provide valuable tax advantages. Our team collaborates with trusted partners who specialize in identifying these opportunities, ensuring clients can maximize potential benefits in their tax preparation.

5. Permanent Estate & Gift Tax Exemption

Previously set to expire on Dec. 31, 2025, OBBBA made permanent the amounts for the federal estate and gift exemption. For 2025, the exemption is $13.99 million per single taxpayer. Further, it established this exemption at $15 million per single payer in 2026, following with inflation index adjustments beginning in 2027.

This provides stability relative to creating strategies for longer-term planning in succession and transition plans of your farm operation. Be sure to discuss with your tax professional.

PERSONAL & OTHER BUSINESS IMPACTS

Additional New Federal Tax Code

1. Temporary Senior Deduction

For tax years 2025-2028, individuals age 65 or older may claim a $6,000 deduction, phased out for higher incomes (reduced by 6% of modified adjusted gross income (MAGI) above $75,000 single/$150,000 joint). Although the senior deduction does not specifically exempt Social Security benefits from federal tax, it does help reduce taxable income in general for eligible seniors.

2. Deduction on Interest on New Vehicle Loans

In tax years 2025-2028, automobile loan interest is deductible for new vehicles if the final assembly was in the U.S. and capped at $10,000 with higher income phase outs. This is only available for personal use vehicles and is available for taxpayers using either itemized or standard deductions.

Permanent Federal Tax Code Changes

In addition to the estate and gift tax exemption mentioned earlier, several items introduced by the Tax Cuts and Jobs Act (TCJA) in 2017 that were set to expire Dec. 31, 2025, were made permanent. This avoided the reversion to previous code, which would have resulted in higher individual bracket rates for most levels and decreases in the dollar amount in the other categories.

Prepare for Year-End

Many of these federal changes may also affect your state tax liability, depending on whether your state conforms to the new federal rules. Check with your tax professional or state department of revenue for guidance. The OBBBA also includes new rules and limitations for certain deductions and credits, so careful planning is recommended.

• Pro Tip: Due the changes in the OBBBA, the start of the tax filing season is anticipated to start later than previous years. It may be beneficial to consider making a Jan. 15 estimated payment to allow your preparer more time to work under the new rules. And don’t forget, the IRS’s new electronic payment rule stemming from the “Modernizing Payments To and From America’s Bank Account” executive order, all payments must be made electronically starting this fall. 

Let’s Make the Most of What’s Ahead
The OBBBA opens new doors for ag-focused tax strategies, long-term planning and growth. Whether you're already working with us or exploring options, Compeer Financial’s tax and accounting team is here to help you navigate it all with confidence.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Tax and accounting advice provided by members of Compeer Financial’s Tax and Accounting division. Compeer Financial does not provide legal advice or certified financial planning. You should consult your own tax, legal and accounting advisors before engaging in any transaction or tax return filings. Compeer Financial, ACA is an Equal Credit Opportunity Lender and Equal Opportunity Provider and Employer. © 2025 All rights reserved. NMLS #619731.