The depreciable life of a tractor depends on whether it’s new or used and which depreciation system you use. Under the IRS General Depreciation System, a new tractor has a five-year recovery period and a used tractor has a seven-year recovery period. Under the Alternative Depreciation System, both run ten years. In practice, most buyers never follow those schedules to the end because Section 179 and 100% bonus depreciation let you deduct the entire purchase price in the year you place the tractor in service.
New vs. Used Under GDS
The default approach for depreciating a tractor is the General Depreciation System within MACRS. A brand-new tractor whose original use begins with you, placed in service after December 31, 2017, falls into a five-year GDS recovery class. A used tractor falls into the standard seven-year class for agricultural machinery and equipment.1Internal Revenue Service. Publication 225 – Farmer’s Tax Guide
That two-year gap matters when you depreciate the tractor over its full recovery period rather than expensing it upfront. The new-tractor schedule produces larger annual deductions because the same cost basis is spread over fewer years. When you use Section 179 or bonus depreciation to deduct the full cost in year one, the new-versus-used distinction stops mattering for the depreciation life, though it still affects other eligibility rules discussed below.
When ADS Applies Instead
The Alternative Depreciation System uses a ten-year recovery period for farm machinery and applies straight-line depreciation, producing equal annual deductions.1Internal Revenue Service. Publication 225 – Farmer’s Tax Guide The same ten-year life applies to both new and used tractors.
Few farmers choose ADS voluntarily, but it becomes mandatory in several situations:
- Tractors used predominantly outside the United States.
- Tractors leased to a tax-exempt entity.
- Farmers who elected out of the uniform capitalization rules for pre-productive period expenses under pre-2018 law were required to use ADS for other farm assets, including tractors. The Tax Cuts and Jobs Act expanded the small-business exemption from these capitalization rules, so many farmers no longer face this tradeoff.2Center for Agricultural Law and Taxation. IRS Allows Some Farmers to Revoke Election Out of UNICAP
You can also elect ADS voluntarily for any class of property. Some operations prefer the steady, predictable deductions, particularly when income is expected to rise and future deductions will offset higher-bracket income. The election is irrevocable once made and applies to all property in that class placed in service during the same tax year.
Section 179 Expensing in Year One
Section 179 lets you deduct the full purchase price of a qualifying tractor in the year you place it in service, skipping the multi-year recovery schedule entirely. For the 2026 tax year, the maximum Section 179 deduction is $2,560,000, phasing out dollar-for-dollar once the total cost of Section 179 property placed in service during the year exceeds $4,090,000.3Internal Revenue Service. Publication 946 – How To Depreciate Property A single tractor purchase sits well below that ceiling.
Both new and used tractors qualify, as long as the equipment is new to your business and you use it more than 50% for business purposes. Tractors acquired by gift or inheritance don’t qualify, and neither do purchases from related parties such as family members or entities you control.
The biggest limitation is the income cap. Your Section 179 deduction cannot exceed the net income from all of your active businesses for the year. If the deduction would push you into a loss, it gets trimmed to match your income. Any disallowed amount carries forward indefinitely and can be deducted in a future year when you have enough business income to absorb it.4eCFR. 26 CFR 1.179-3 – Carryover of Disallowed Deduction
100% Bonus Depreciation After 2025
The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025.5Internal Revenue Service. One, Big, Beautiful Bill Provisions This reversed the phasedown that had been in effect since 2023, when the rate dropped from 100% to 80% and was scheduled to reach zero by 2027.
If you buy a tractor and place it in service in 2026 or any later year, you can deduct 100% of the cost as a first-year depreciation allowance.6Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System The deduction is permanent under current law.
Unlike Section 179, bonus depreciation can create or increase a net operating loss. If your tractor purchase generates a loss, you can carry that loss to other tax years, which makes bonus depreciation particularly valuable for operations in a startup phase or a year with thin margins.
Used tractors qualify for 100% bonus depreciation as long as the tractor was not previously used by you, the acquisition counts as a purchase rather than a gift, inheritance, or related-party transaction, and you didn’t use the tractor within the prior five years.
You can apply both Section 179 and bonus depreciation to the same tractor. Section 179 comes first, reducing the depreciable basis, and bonus depreciation then applies to whatever basis remains. With 100% bonus depreciation back in effect, the practical result is the same whether you use Section 179 alone, bonus depreciation alone, or both together. The choice comes down to whether the income limitation of Section 179 or the loss-generating capacity of bonus depreciation fits your situation better.
If you want to spread deductions across multiple years for tax planning, you can elect out of bonus depreciation for the entire class of property. That election is made on your return for the year the tractor is placed in service and applies to all property in the same recovery class placed in service that year.
Business Use and Personal Use
When a tractor serves both business and personal purposes, you can only depreciate the portion tied to business use. Using a tractor 80% for farming and 20% for personal tasks puts your depreciable basis at 80% of the purchase price.
Tractors are not listed property. IRS Publication 946 identifies tractors and other special-purpose farm vehicles as excepted vehicles outside the listed property transportation category, so they aren’t subject to the strict documentation rules or the automatic ADS treatment that kicks in when listed property business use drops to 50% or below.7Internal Revenue Service. Publication 946 – How To Depreciate Property
Section 179 still requires more than 50% business use in the year the tractor is placed in service. If business use falls below that threshold, you lose Section 179 but can still claim regular MACRS depreciation on the business-use percentage. Keeping a usage log with dates, hours, and the purpose of each use is the simplest way to substantiate your deduction.
What Happens When You Sell
Depreciation reduces your tax basis in the tractor. When you sell it, the IRS recaptures some or all of those prior deductions as ordinary income under Section 1245. The recapture amount equals the lesser of the total depreciation you claimed or the gain on the sale.8Office of the Law Revision Counsel. 26 USC 1245 – Gain From Dispositions of Certain Depreciable Property
Suppose you bought a tractor for $150,000 and claimed the full amount through Section 179 or bonus depreciation, bringing your adjusted basis to zero. If you later sell for $60,000, the entire $60,000 gain is recaptured as ordinary income taxed at your regular rate. You already got the tax benefit of writing off $150,000, so the IRS takes back a proportional piece when you cash out.
If you sell the tractor for more than the original purchase price, the gain up to the total depreciation claimed is ordinary income, and any excess above original cost is capital gain. Most used farm equipment sells for less than the original price, so the entire gain is usually ordinary income recapture.
This rule applies regardless of which depreciation method you used. A tractor expensed entirely through Section 179 in year one gets the same Section 1245 treatment as one depreciated over five or seven years under GDS. The more aggressive the upfront deduction, the larger the potential recapture when you sell, so factor the eventual sale price into your depreciation strategy from the start.