Tax Considerations Every Rancher Should Know About

Ranch life is hard work, and the Internal Revenue Service recognizes and rewards this lifestyle. If you’re thinking about purchasing a ranch and generating income from the land, you’ll likely qualify for several appealing tax benefits and deductions. Here, we share a few of the most compelling incentives for ranchers, with an emphasis on ranches that raise livestock.

Deduction of Operation Expenses

Our country’s food supply largely depends upon the work of ranchers, so the IRS makes it possible for farmers to deduct several ranch operating expenses. Running a working cattle ranch or other type of farm comes with a wide array of expenses, including animal feed, breeding fees, and employee wages. The mortgage on the ranch may also qualify as a business expense, allowing you to deduct the interest paid each year. However, cases vary by state and situation, so always be sure to consult with a tax professional if you’re planning on deducting operating expenses.

Deduction of Startup Expenses

If you’re thinking about purchasing a large tract of land to be used for ranching purposes, you may be able to deduct startup expenses. While established ranching operations usually aren’t able to deduct costs related to improving existing equipment or purchasing new equipment, ranches that are just getting started are subject to different guidelines.

The Ability to Deduct Profits

Recent tax reforms are good news for farmers and ranchers, and the new tax code allows ranchers to deduct 20% of profits. This is an enormous burden lifted from ranches, and will spark economic growth for both established and up-and-coming operations.

Higher Estate Tax Limit

Ranches are often handed down for generations and are part of the American heritage.  Estate taxes are applied to an individual’s assets after death, before the property is passed down to the beneficiary. Previously, estates exceeding $11 million were subject to estate tax. Under the new laws, the exemption amount threshold has doubled to $22 million for couples. According to Forbes, the new estate tax laws reduced the number of taxable estates in 2018 to 1,890, down from 4,687 taxable estates in 2013. This tax benefit is scheduled to expire by end of year 2025, but it’s currently a relief to ranchers hoping to pass down their estate without a considerable tax burden.  

Owning and operating a ranch comes with a unique set of challenges, but there are several tax incentives to help ease the financial burden and maximize profits. If you’re exploring the possibility of becoming a ranch owner, we can help you find the best property for your needs and develop a plan for ranch management. When you’re ready for assistance in navigating the buying or selling process, please reach out to our team.

One Reply to “Tax Considerations Every Rancher Should Know About”

  1. Great article. Also, ranchers may have an opportunity to put away under the right conditions as much as 55-62k into a retirement plan every year and in some cases, as much as 230k and those contributions come right off the top or earned income which will reduce income taxes.

    Also, when selling. don’t forget that the next generation can defer taxes when a 1031 can’t be completed or isn’t appropriate.

    RMA brokers are some of the best in the Rocky Mountain states and they will do a great job buying and selling properties for their clients. Call them.

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