The depreciable life of a tractor depends on whether it’s new or used and which depreciation system you use. A new tractor placed in service after December 31, 2017 has a five-year recovery period under the IRS General Depreciation System. A used tractor has a seven-year period. Under the Alternative Depreciation System, both run ten years.1Internal Revenue Service. Publication 225 – Farmer’s Tax Guide Most buyers never actually spread the deduction across those years, because Section 179 and 100% bonus depreciation let you write off the entire purchase price in the first year.
New vs. Used Recovery Periods Under GDS
Tractors are depreciated under the Modified Accelerated Cost Recovery System (MACRS). The default is the General Depreciation System, and the length of the recovery schedule turns on a distinction buyers often miss.
A brand-new tractor, where original use begins with you, falls into a five-year GDS class if placed in service after December 31, 2017. A used tractor falls into the standard seven-year class for agricultural machinery and equipment. Both new and used tractors share a ten-year recovery period if you use ADS instead.1Internal Revenue Service. Publication 225 – Farmer’s Tax Guide
The new-versus-used split matters most when you decline the accelerated deductions and spread the cost across the full recovery period. A new tractor finishes two years sooner and produces larger annual deductions along the way. When 100% bonus depreciation or Section 179 applies, the recovery-period distinction largely stops mattering, because the full cost comes off in year one regardless.
How the Standard MACRS Calculation Works
Under GDS, tractors use the 200% declining balance method, which loads deductions into the early years and then switches automatically to straight-line once that produces a larger annual deduction.2Internal Revenue Service. Publication 946 – How To Depreciate Property
The half-year convention applies by default. It treats the tractor as placed in service at the midpoint of the year, so the first-year deduction is half of a full year. If more than 40% of all depreciable property you placed in service during the year came in the last three months, the mid-quarter convention takes over instead, and your first-year figure shrinks based on the quarter you actually started using the tractor.3eCFR. 26 CFR 1.168(d)-1 – Applicable Conventions Half-Year and Mid-Quarter Conventions
Depreciation is reported each year on Form 4562, which tracks the cost basis and recovery schedule for every depreciable asset in the business.4Internal Revenue Service. Form 4562 – Depreciation and Amortization
Section 179: Deducting the Full Cost in Year One
Section 179 lets you deduct the entire purchase price of a qualifying tractor in the year it’s placed in service, skipping the multi-year recovery schedule. For the 2026 tax year, the maximum Section 179 deduction is $2,560,000, phasing out dollar-for-dollar once total Section 179 property placed in service exceeds $4,090,000.5Internal Revenue Service. Publication 946 – How To Depreciate Property A single tractor purchase will nearly always fall well below that ceiling.
Both new and used tractors qualify, so long as the equipment is new to your business and used more than 50% for business purposes. Tractors acquired by gift or inheritance don’t qualify. Neither do purchases from related parties such as family members or entities you control.
The main constraint is the income cap. Your Section 179 deduction cannot exceed the net income from your active businesses for the year. If the deduction would push you into a loss, it’s trimmed back to match your income, and the disallowed amount carries forward indefinitely until you have enough business income to absorb it.6eCFR. 26 CFR 1.179-3 – Carryover of Disallowed Deduction
100% Bonus Depreciation
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, 2025.7Internal Revenue Service. One, Big, Beautiful Bill Provisions That reversed the phasedown that had started in 2023, when the rate dropped from 100% to 80% on its way toward 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.8Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System The deduction is permanent under current law and does not phase down.
Unlike Section 179, bonus depreciation can create or increase a net operating loss. If the tractor purchase drives you into a loss, that loss can be carried to other tax years. For operations in a startup phase or a thin-margin year, that flexibility is the main reason to prefer bonus depreciation over Section 179.
Used tractors qualify for 100% bonus depreciation if 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.
When ADS Applies Instead
The Alternative Depreciation System stretches farm machinery to a ten-year straight-line schedule, producing equal annual deductions.1Internal Revenue Service. Publication 225 – Farmer’s Tax Guide Few farmers pick ADS voluntarily, but certain situations require it:
- 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. The Tax Cuts and Jobs Act expanded the small-business exemption from those rules, so many farmers no longer face this tradeoff.9Center for Agricultural Law and Taxation. IRS Allows Some Farmers to Revoke Election Out of UNICAP
You can also voluntarily elect ADS for any class of property. Some operations prefer the steady, predictable deductions, particularly when income is expected to rise into higher brackets in future years. The election is irrevocable once made and applies to all property in the same class placed in service during the same tax year.
Business Use and Mixed-Use Tractors
When a tractor serves both business and personal purposes, you can only depreciate the business-use portion. A tractor used 80% for farming and 20% for personal tasks has a depreciable basis of 80% of the purchase price.
Tractors are often assumed to be “listed property” subject to strict documentation rules and forced ADS treatment when business use drops below 50%. They aren’t. Publication 946 specifically identifies tractors and other special-purpose farm vehicles as excepted vehicles outside the listed property transportation category.2Internal 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. A usage log with dates, hours, and purpose is the simplest way to substantiate the deduction if the IRS asks.
What Happens When You Sell
Depreciation reduces your tax basis in the tractor. When you sell, the IRS recaptures some or all of those prior deductions as ordinary income under Section 1245. The recapture equals the lesser of the total depreciation claimed or the gain on the sale.10Office of the Law Revision Counsel. 26 USC 1245 – Gain From Dispositions of Certain Depreciable Property
Say you bought a tractor for $150,000 and wrote off the full amount through Section 179 or bonus depreciation, bringing your adjusted basis to zero. Sell it later for $60,000, and the entire $60,000 gain is ordinary income taxed at your regular rate. You already took the benefit of a $150,000 deduction, and the IRS pulls back a proportional piece when you cash out.
If the tractor sells for more than its original purchase price, the gain up to 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 in practice the whole gain is usually ordinary income recapture.
Recapture applies regardless of which depreciation method you used. A tractor fully expensed in year one gets the same Section 1245 treatment as one depreciated over five or seven years. The more aggressive the upfront deduction, the larger the potential recapture when you sell. Factor the eventual sale into your depreciation strategy so the tax bill on disposal doesn’t catch you off guard.