Your Farm’s Story Built One Asset at a Time

Father’s Day has a way of bringing back memories: sitting in the combine with your grandpa, learning to drive a tractor, changing out waterers. The farm is full of stories, and many of those stories are quietly recorded in one (usually overlooked) place: the depreciation schedule for your tax return.

The depreciation schedule may be the most sentimental financial report on the farm. At first glance, it is just columns of dates, descriptions, costs, depreciation methods, and remaining basis. But look closer. It tells the story of how the operation was built one asset at a time. Some assets were bought because the farm was growing; some were bought because something broke at the worst possible time; some were bought because Dad was sure it was the next great idea, whether it was or not. Each asset represents a decision, a risk, and usually a long conversation at the kitchen table.

I have seen dozens of depreciation schedules over my professional life and I could probably count on one hand the number of times I’ve gone over them with a client and it was “clean”. There is always a tractor, a truck, or a corn crib from the ‘70s that are still sitting on that schedule 50 years later. Sometimes they are still around but most often they are not.

While those legacy schedules may be a good trip down memory lane, the implications of having assets that may not be around on tax records can be a speed bump in the transition process. Having those old assets on tax records may cause confusion or, worse, actual tax implications trying to clean up the balance sheet for a transition.

That cleanup is more than bookkeeping. In transition planning, the depreciation schedule helps support the tax basis balance sheet. It shows which assets still have tax basis, which ones may create depreciation recapture if sold, and which items should have been removed years ago because they were traded, scrapped, or sold. It also helps the next generation reconcile what they see in the shed with what appears in the accounting software and on the tax return. When those three pictures do not match, the new operator starts with confusion instead of confidence.

If you haven’t gone through your tax depreciation schedule, ask your tax preparer to send you a copy. Make a little time at the dinner table now that planting is done. If you see assets that shouldn’t be on there, mark the schedule up and let your tax preparer know you have some updates for the next tax planning.

If you know who’s going to be taking over the farm, have them go through it with you. Understanding where the farm came from will shape how they manage the farm going forward. There’s probably going to be a purchase on there that they didn’t know about or were too young to understand the implications at the time. You can share the story, impart your wisdom, and have a moment. And the best part is, you’ll be able to share that moment with someone that is important to you.