Big thanks to Roger McEowen, Kansas Farm Bureau Professor of Agricultural Law and Taxation at Washburn University School of Law in Topeka, who points out that this year's Farmer's Tax Guide from the IRS has a major error:
"Each year, the IRS produces Publication 225 - the Farmer's Tax Guide. The 2018 edition is now available on the web - all 93 pages of it. Generally, it provides a good overview of farm tax topics and provides guidance to farmers, ranchers and their practitioners in preparing farm tax returns. However, this year's edition contains a major mistake concerning depreciation.
The Tax Cuts and Jobs Act (TCJA) establishes a 5-year recovery period for machinery or equipment (other than any grain bin, cotton ginning asset, fence, or other land improvement) used in a farming business, the original use of which commences with the taxpayer and is placed in service after December 31, 2017. That means that new farm machinery and equipment is 5-year MACRS property. The provision DOES NOT APPLY to used farm machinery and equipment. Used farm machinery and equipment remains 7-year property.
Unfortunately, the 2018 version of the Farmer's Tax Guide has the following statement on page 36, right-hand column, second paragraph:
"Depreciation of certain farm property. The recovery period for any machine and equipment (other than any grain bin, cotton ginning asset, fence or other land improvement) used in a farming business and placed in service in 2018, has changed from 7 years to 5 years."
This is incorrect. The 5-year provision only applies to new machinery and equipment (as specified above). Used machinery and equipment remains 7-year property.
On page 44, the IRS sets forth a table on depreciation of farm property. After the entry in that table for "farm machinery and equipment" (which is denoted as 5-year property), the IRS places a footnote. In that footnote, properly denotes that such machinery and equipment must be new property (by quoting the statutory language). However, it is not likely that many readers (particularly persons other than tax professionals) will read that footnote.
Also, if a taxpayer were to take the position that used farm machinery and equipment is 5-year property, neither the IRS nor the courts will give any weight to an IRS publication. Taxpayers rely on IRS publications at their own risk. That seems completely unfair, but that's the way it works."