Income Tax Updates Offer Relief & Reminders

Farmers can expect some continuity and a few key benefits when it comes to their federal income taxes this year.

One of the most notable updates is that income tax brackets and standard deductions will stay largely the same, thanks to a budget extension passed by Congress. Extension Farm Management Specialist Kelly Wilfert says the rates, originally adjusted in 2018, were set to sunset in 2026. Without this extension, taxpayers would have seen standard deductions drop and tax brackets shift upward.

“We’ll still see those standard adjustments for inflation, but in general, it’s not going to be a major change from what we experienced last year,” Wilfert says. “Although it’s a pretty significant change from what we would have seen next year had that change not been made.”

While that change impacts all taxpayers, several provisions in the federal budget are relevant for farmers, Wilfert says. These include the return of the qualified business income deduction and the reinstatement of full expensing, aka bonus depreciation.

“Bonus depreciation, which allows our farmers to expense certain purchases all in year one versus spreading it out, has been getting phased out over the last few years and was set to totally go away,” Wilfert explains. “This bill brought that back.”

In addition, Congress extended the clean fuel production credit, or 45Z tax credit, through 2030. Although the credit goes to fuel producers rather than farmers directly, it could still benefit agriculture. That’s because qualifying fuels must come from feedstocks grown in the U.S., Canada, or Mexico, potentially boosting demand for commodities such as corn and soybeans. However, Wilfert cautions farmers to read any certifications carefully before signing. Farmers may be held accountable for compliance in connection with the credit.

See previous Mid-West Farm Report coverage on capital gains updates: https://www.midwestfarmreport.com/2025/07/13/capital-gains-flexibility-eases-farmland-transfers/

See previous Mid-West Farm Report coverage on death tax modifications: https://www.midwestfarmreport.com/2025/07/11/death-tax-modifications-aid-farm-succession-planning/