Farm Tax Deductions: Vehicles, Repairs and Maintenance

So the truck you use for hauling produce needs to be repaired or replaced, and you’re wondering how to maximize your deduction.

Do you buy new or used, and if so what type of vehicle should you buy to get the biggest write-off? Should you lease instead? If you service the vehicle yourself, can you write those costs off?

While most of the costs associated with buying, repairing and maintaining a farm vehicle are deductible if they’re for business use, the rules can get complicated. Here’s what you need to know.

Looking for a different farm tax deduction? Start here.

Deducting Farm Vehicle Expenses

Farmers have two options when deducting their car and truck expenses: the actual cost method and the standard mileage rate (SMR).

1. Actual Cost

As long as the vehicle is used for business purposes, farmers can generally deduct any expenses associated with the use of a farm vehicle, including:

• Supplies like oil and gas

• Repairs and maintenance

• Insurance, car lease payments and loan interest

• Depreciation

• Fees like license tags, parking and tolls

• Local and state vehicle taxes

Provided they’re used for business more than 50% of the time, farmers can also deduct the entire cost of new or used vehicles in the first year they’re placed in service using Section 179, which we’ll return to later.

2. Standard Mileage Rate

If you haven’t kept detailed enough records to use the actual cost method, you can use the standard mileage rate (SMR) to figure your deduction instead. The standard mileage rate for 2024 is 67 cents per mile, up 1.5 cents from last year.

Parking, tolls, local and state vehicle taxes and loan interest aren’t included in the SMR and can be deducted on your tax return even if you don’t use the actual cost method.

You can’t use SMR if your business operates more than four cars or light trucks, or if you’ve taken the Section 179, Bonus Depreciation, or any other depreciation deduction for the vehicle (see below).

If you use the actual cost method for a vehicle in the first year, you can’t switch to SMR in later years. If you use SMR, you’re allowed to switch to actual cost in later years, but if you do you can only use straight-line depreciation for that vehicle.

The Business Use of a Farm Vehicle Safe Harbor

Coming up with an exact percentage for business mileage can be tricky without detailed vehicle logs. To avoid the extra recordkeeping burden, farmers have a special rule or “safe harbor” called §1.274-6T(b) which allows them to claim 75% of the use of a vehicle for business use without records.

According to the IRS, farmers can only use the safe harbor if they use the vehicle “during most of the normal business day directly in connection with the business of farming.”

This rule can be used in combination with both the actual cost and the SMR method. It must be used in the first year a vehicle comes into use, and you can’t switch to another method in future years if you do.

Section 179 and AFYD for Vehicles

Section 179 allows farmers to deduct the cost of new or used vehicles in the first year that they’re placed in service instead of depreciating them over time, provided the vehicle is used for business more than 50% of the time (you can only deduct the business part).

The Section 179 deduction can’t exceed the taxpayer’s total income for that year, and there’s also a total annual limit, which for 2024 is $1,220,000.

Farmers can claim an additional deduction called first-year depreciation (AFYD) or “bonus depreciation,” which allows taxpayers to write off 100% of the cost of a vehicle placed in service between September 27, 2017 and January 1, 2023.

Keep in mind that AFYD is temporary and began to phase out in 2023, decreasing to 80% for the 2023 calendar year and 60% for 2024. It will decrease to 40% for 2025, 20% for 2026, and phase out completely in 2027.

“Luxury Car” Limits for Section 179

Four-wheeled vehicles used mainly on public roads with an unloaded gross weight under 6,000 lbs. are considered “luxury vehicles” by the IRS and the total Section 179 deduction for them is capped.

These limits depend on whether the taxpayer has claimed AFYD for that vehicle, and also change year to year. This chart summarizes the depreciation and Section 179 limits for luxury vehicles placed in service in 2024:

Repairs and Maintenance

Expenses related to any vehicle repairs and maintenance like labor, supplies, tools and contractor fees are usually deductible in the year that they’re purchased. Some examples of other activities that qualify as deductible repairs and maintenance include:

• Repainting a farm building

• Replacing a broken window

• Replacing tiles on a roof

• Mending a fence

• Changing the oil in a farm vehicle

Repairs vs. Improvements

If an expense ‘improves,’ ‘betters,’ or ‘restores’ farm property (i.e. buildings, vehicles, or equipment) in some way, it can’t be deducted and will have to be capitalized and depreciated instead. But the difference between repairs and improvements isn’t always clear. According to the IRS, capital improvements:

• Materially add, physically enlarge, expand, or extend the property in some way

• Are reasonably expected to materially increase the productivity, efficiency, strength, quality, or output of the property

• Restore or rebuild the property to like-new condition at the end of its life

• Replace a part or combination of parts that comprise a major component of the property

For example: replacing a few fence posts is a deductible expense, but the cost of replacing an entire fence would be considered a capital improvement.

Adapting property to a new use

Farm expenses might also not be deductible if they adapt farm buildings, vehicles, or equipment to some new or different use.

If a farmer decides to sell some of their land to a real estate developer and pays to clear and re-grade the land for that purpose, for example, the amount paid must be depreciated instead.

De Minimis Safe Harbor Election

A special rule called Section 1.263(a)-1 allows farmers to make what’s called a “safe harbor” election, which allows them to deduct expenses even if they aren’t sure whether they need to be depreciated. This might apply to an expense you aren’t sure qualifies as a repair or an improvement, or to small equipment like chainsaws, bush hogs and tools.

The safe harbor amount for farmers without an applicable financial statement (i.e. they don’t produce an income statement for their business) is $2,500, which means that they can deduct an expense as long as the amount paid does not exceed $2,500 per invoice. The amount for farmers with an applicable financial statement is $5,000 per invoice.

Labor costs

Most labor costs related to repair and maintenance of farm property are deductible, however farmers can’t deduct wages paid to hire help for the construction of new farm buildings. They also can’t deduct labor costs associated with capital improvements, which must be capitalized.

Farmers also can’t deduct the cost of household work, maintenance work on their home, or any other labor costs related to maintaining or repairing their home, as those are considered non-deductible personal expenses.

Conservation expenses

Farmers can also deduct certain expenses related to soil or water conservation and erosion prevention on land used for farming under Section 175, including land leveling and grading, bush clearing, windbreak planting, construction of irrigation ditches and earthen dams, and more.

These activities must be approved by the USDA’s Natural Resources Conservation Service or an equivalent state body, and farmers can only deduct up to 25% of their annual gross income from farming at a time, but are allowed to carry the excess into future years.

What to know before you start deducting

1. Make sure it’s a business expense

According to the IRS, you can only deduct expenses that are “common” and “necessary” in your line of work. Deducting expenses you use for both business and personal purposes (i.e. vehicles and equipment) often requires extensive recordkeeping in the form of activity logs, and also some proof that they’re directly associated with your business.

2. Know the hobby rules

You can’t deduct any expenses if the IRS determines you’re a non-profit or ‘hobby’ farm. This can happen if you fail to earn a profit in 3 of the last 5 years, which is when the IRS comes in to take a closer look and determine a profit motive. If you fail the profit test, however, you might be able to postpone this process by filing IRS Form 5213.

You can find a list of factors the IRS considers in the ‘Not-for-Profit Farming’ section of the IRS Farm Tax Guide.

3. Separate farming from non-farming

Remember that not all of the income earned on a farm is considered “farming income” for tax purposes.

Processing farm commodities (e.g. wine and cheese-making, butchery, canning, jamming) is not considered farming by the IRS. Providing farming services like custom harvesting, trucking commodities to market, agritourism and running an events space also don’t count.

For more, check out our guide to who is and isn’t considered a farmer for tax purposes by the IRS.

Looking for a different farm tax deduction?

We’ve gathered the most popular farm business deductions into one easy to read guide. Check out the introduction or dive into the relevant section below.

Part 1: Vehicles, Repairs and Maintenance

Part 2: Supplies, Fertilizer, Feed and Goods Purchased for Resale

Part 3: Overhead, Fees, Taxes, Office Expenses and Utilities

Part 4: Wages, Benefits, Business Travel and Meals

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