The tax benefits of leasing farm buildings are mostly deductions. When you lease a building to someone else, the rent is taxable, but you can deduct depreciation, repairs, insurance, and property taxes, so you are taxed only on the net. How fast you depreciate depends on the building: a general-purpose machine shed is 20-year property, a single-purpose livestock building is 10-year, and a grain bin is 7-year. Property bought after January 19, 2025 may also qualify for 100% bonus depreciation. For the tenant, rent paid for a building used in the farm business is generally deductible. The catches are real too: cash rent landlords usually cannot use section 179, rental income can be hit by the 3.8% net investment income tax, and a poorly written lease can make the IRS see a sale instead of a rental.
Key takeaways
- Building rent is taxable income, reduced by depreciation and ownership costs.
- Recovery periods: 20 years for general-purpose farm buildings, 10 for single-purpose livestock buildings, 7 for grain bins.
- 100% bonus depreciation is back for qualifying property acquired after January 19, 2025.
- Cash rent landlords generally cannot use section 179 and may owe the 3.8% net investment income tax.
- Price building rent separately in the lease so both sides know what they are paying for.
How is rent from a farm building taxed?
For most landowners, rent from a machine shed, a set of bins, or a livestock building is rental income. Iowa State’s Center for Agricultural Law and Taxation explains in its review of farm lease taxes that cash rent is reported on Schedule E and is not subject to self-employment tax. That review covers farmland, and the same general treatment applies to buildings rented for cash, but confirm your own situation with your tax preparer.
That has a cost. Cash rent does not count toward Social Security, the income is passive, and higher-income landlords may owe the 3.8% net investment income tax. If you rent buildings as part of a crop share arrangement and materially participate in the farm, the income can land on Schedule F and be subject to self-employment tax instead.
How do you depreciate a leased farm building?
Depreciation is the landlord’s biggest deduction on a building. It lets you recover what you paid over time even though you are not spending any cash that year. Land itself is never depreciated, so if you bought a farm with buildings, your tax preparer will need to split the purchase price between land and buildings.
The recovery period depends on what the building is. A Rural Tax Education fact sheet drawn from IRS tables lists these general depreciation system periods:
- General-purpose farm buildings, like a machine shed or a pole barn: 20 years.
- Single-purpose livestock structures, like a hog confinement building: 10 years.
- Grain bins: 7 years.
- Drainage tile: 15 years.
- Agricultural fences: 7 years.
Bonus depreciation can speed that up. According to IRS Publication 225, the 100% special depreciation allowance is restored for qualified property acquired and placed in service after January 19, 2025, including property with a recovery period of 20 years or less. Section 179 is different. Cash rent landlords generally cannot use it, according to the CALT review above, though crop share landlords may.
Depreciation you take now can be recaptured when you sell the building. Talk with your tax preparer about how a large write-off fits with any plan to sell or hold the farm.
What else can the landlord deduct?
The ordinary costs of owning a rented building generally reduce your rental income: repairs and maintenance, property insurance, real estate taxes, utilities you pay under the lease, and any farm management fees for the rented property. The line between a repair and an improvement matters. A repair that keeps the building in working order is generally deducted in the year you pay for it. An improvement that adds value or extends the building’s life is capitalized and depreciated. Our post on who maintains what on a rented farm covers who usually pays for which.
What can the tenant deduct?
For a farmer renting a building for the operation, rent is generally a deductible farm business expense. Renting also avoids tying up capital in a building the tenant may only need for a few years, which keeps cash available for inputs, livestock, or equipment.
If the tenant pays for improvements to a rented building, like new fans in a hog barn or a concrete floor in a shed, those costs are usually capitalized and depreciated by the tenant rather than deducted all at once. The lease should say who owns the improvement and whether the landlord reimburses any unused value if the lease ends early.
When does a lease look like a sale to the IRS?
Most farm building leases are ordinary rentals: the landlord owns the building, the tenant pays to use it, and the building stays with the landlord when the lease ends. But some arrangements look more like a sale paid over time, for example when the lease runs for most of the building’s useful life or the tenant can buy it at the end for a nominal price. The IRS can treat those as a purchase, which changes who claims depreciation and how the payments are taxed. If your lease includes a purchase option or very long terms, have your tax preparer review it before you sign.
Should buildings be rented with the land or separately?
Often separately, or at least with a separate number. Many Iowa farms are rented with old buildings included and no rent assigned to them, which makes it hard to know whether the buildings are earning anything or just costing insurance and taxes. Pricing the land and the buildings separately lets you track each one, set a fair rent for bins or a shed the tenant actually uses, and decide whether an old building is worth keeping.
Livestock buildings are their own market. If you own hog buildings, our swine facilities specialist works with buyers and sellers of commercial hog buildings. For setting cropland rent, see our 2027 cash rent guide.
What should a building lease say?
- Which buildings and bins are included, and the rent for each or for the group.
- The payment schedule and term.
- Who insures the building and who insures what is stored inside.
- Who pays for repairs, with a dollar limit for repairs without approval.
- Who owns tenant-paid improvements, and whether unused value is reimbursed.
- Any purchase option, written with your tax preparer’s input.
- How the lease ends, tied to Iowa’s September 1 notice deadline if the buildings are part of a farm lease.
Keep records of every rent payment, expense, and improvement, along with the original cost of each building. Those records support your deductions now and set the gain when the farm is sold. This is general information, not tax advice. Work with a tax professional who handles farm returns.
Where Midwest Land Management fits
Our farm management team, led by Travis Johnson, AFM, writes leases that price land, bins, and buildings, coordinates building repairs and improvements, and keeps the income and expense records your tax preparer needs. For more on the tax side of owning farmland, see tax benefits of owning agricultural land.
FAQ
Is rent from a farm building subject to self-employment tax?
Cash rent is generally rental income reported on Schedule E and not subject to self-employment tax. Rent tied to a crop share arrangement where you materially participate can be different. Ask your tax preparer.
How long do you depreciate a machine shed?
A general-purpose farm building like a machine shed is 20-year property. Single-purpose livestock buildings are 10-year, and grain bins are 7-year. Bonus depreciation may apply to property acquired after January 19, 2025.
Can a landlord use section 179 on a rented farm building?
Cash rent landlords generally cannot use section 179, according to Iowa State’s Center for Agricultural Law and Taxation. Crop share landlords may be able to.
Can a tenant deduct rent for a farm building?
Yes, rent for a building used in the farm business is generally a deductible business expense.
Need your buildings priced and written into your lease? Call our Spencer office. We will price the land, bins, and buildings separately and put the terms in writing.