Agriculture R&D Tax Credit & Cost Segregation
R&D Tax Credit
R&D Tax Credits and Cost Segregation for Agriculture
Farms and agricultural businesses often perform technical work that goes beyond routine farming. Testing crop varieties, developing irrigation systems, modifying equipment, improving livestock nutrition and investing in agricultural facilities can create tax opportunities when the applicable federal requirements are met.
The R&D Tax Credit under IRC §41 may apply to qualifying technical research and experimentation. Cost Segregation can help agricultural property owners identify building components and improvements that qualify for shorter depreciation recovery periods.
RCG Tax Partners helps farms, growers, agribusinesses, agricultural manufacturers and agritech companies evaluate these opportunities and develop the documentation needed to support them.
Since 2004, RCG has completed more than 25,000 R&D Tax Credit studies and identified more than $750 million in federal and state tax savings.
Agriculture R&D Tax Credit vs. Cost Segregation
| Strategy | What It Addresses | Agriculture Examples |
|---|---|---|
| R&D Tax Credit | Qualified research activities and expenses | Crop trials, irrigation testing, feed formulation, equipment development |
| Cost Segregation | Classification and depreciation of property | Farm buildings, grain handling, specialized systems, site improvements |
| Bonus Depreciation | Accelerated deduction for eligible property | Qualifying equipment and shorter-life property |
A business may need to evaluate one or both strategies depending on whether it is investing in technical development, property or both.
Can Farms Qualify for the R&D Tax Credit?
Yes, agricultural businesses may qualify when their research activities satisfy the requirements of IRC §41.
Research does not need to occur in a laboratory. Potentially qualifying work may take place in fields, greenhouses, livestock operations, production facilities or agricultural technology businesses.
Examples that may warrant review include:
Crop and seed trials
Soil and nutrient testing
Irrigation development
Pest or disease-control experimentation
Livestock feed and nutrition formulation
Precision agriculture technology
Sensors and monitoring systems
Agricultural software development
Equipment design or modification
Automation and robotics
Greenhouse and controlled-environment agriculture
Agricultural and food-processing improvements
The activity itself does not automatically qualify. The underlying project must satisfy the federal research requirements.
What Is the Four-Part Test for Agricultural R&D?
Qualified research generally must meet four requirements.
Permitted Purpose: The project seeks to develop or improve the function, performance, reliability or quality of a product or process.
Elimination of Uncertainty: The business is attempting to resolve uncertainty involving capability, methodology or design.
Process of Experimentation: Alternatives are evaluated through testing, modeling, systematic trial and error or another technical process.
Technological in Nature: The research relies fundamentally on physical or biological science, engineering or computer science.
Agricultural projects involving agronomy, biology, engineering, soil science or agricultural technology may qualify when all applicable requirements are met.
What Farm R&D Expenses May Qualify?
Qualified Research Expenses can include certain employee wages, research supplies and contract research expenses when they are connected to qualified research.
Eligible qualified small businesses may also elect to apply up to $500,000 of their research credit against payroll tax liability. The election is made using IRS Form 6765, with Form 8974 used to calculate the payroll tax credit applied to employment taxes.
Domestic R&E tax treatment also changed after the 2025 federal tax law changes. For tax years beginning after December 31, 2024, IRC §174A generally allows a deduction for domestic research or experimental expenditures, while taxpayers may elect qualifying capitalization and amortization treatment instead.
Cost Segregation for Farms and Agricultural Property
Cost Segregation is a depreciation strategy used to analyze property components and determine whether certain assets qualify for shorter recovery periods.
Agricultural businesses may consider a study when they:
Buy agricultural property
Construct a new building or facility
Expand an existing operation
Renovate farm buildings
Add production or processing space
Install specialized systems or site improvements
Farm property does not all depreciate over the same period.
| Agricultural Property | GDS Recovery Period |
|---|---|
| Grain bins | 7 years |
| Agricultural fences | 7 years |
| Single-purpose agricultural structures | 10 years |
| Single-purpose horticultural structures | 10 years |
| Drainage facilities | 15 years |
| General farm buildings | 20 years |
| Nonresidential real property | 39 years |
These recovery periods come from the IRS Farmer's Tax Guide. Actual classification depends on the asset and how it is used.
How Does Bonus Depreciation Apply to Farm Property?
Current federal rules provide a permanent 100% additional first-year depreciation deduction for certain qualified property acquired after January 19, 2025, subject to the requirements of IRC §168(k).
Eligible property generally includes qualifying tangible MACRS property with a recovery period of 20 years or less.
This makes accurate asset classification particularly important for farms investing in equipment, specialized structures, site improvements and other depreciable property.
Can a Farm Use Both R&D Tax Credits and Cost Segregation?
Potentially.
A farming business may test crops, develop irrigation systems or modify equipment while also constructing or renovating agricultural facilities.
The technical development activity may warrant an R&D Tax Credit review, while the property investment may separately warrant a Cost Segregation study.
Each strategy has different eligibility and documentation requirements.
Agriculture R&D Tax Credits by State
State research credits, depreciation rules and agricultural programs vary. RCG's state agriculture resources provide more focused guidance for farms and agribusinesses operating in each market.
Michigan Agriculture R&D Tax Credit
Michigan farms and agribusinesses should evaluate their qualifying agricultural research alongside Michigan's state research-credit rules.
Explore Michigan Agriculture R&D Tax Credits →
Pennsylvania Agriculture R&D Tax Credit
Pennsylvania agricultural businesses may have federal research opportunities as well as Pennsylvania-specific research and agricultural programs.
Explore Pennsylvania Agriculture R&D Tax Credits →
West Virginia Agriculture R&D Tax Credit
West Virginia farms should evaluate federal R&D opportunities together with state-specific agricultural programs and tax treatment.
Explore West Virginia Agriculture R&D Tax Credits →
Indiana Agriculture R&D Tax Credit
Indiana farms and agribusinesses should evaluate federal research activities alongside Indiana's R&D Tax Credit and state depreciation rules.
Explore Indiana Agriculture R&D Tax Credits →
RCG also provides dedicated guidance for
Agriculture and Agritech R&D Tax Credits in Ohio.
Frequently Asked Questions
Can farmers claim the R&D Tax Credit?
Potentially. Farms may qualify when they conduct technical research designed to resolve uncertainty through experimentation. Crop trials, irrigation development, equipment modifications, feed formulation and precision agriculture projects may warrant review when they satisfy IRC §41 requirements.
Do crop and seed trials qualify for the R&D Tax Credit?
They may. Structured trials designed to evaluate alternatives and resolve technical uncertainty can potentially qualify. Routine planting, ordinary monitoring or following established production methods does not automatically constitute qualified research.
Can irrigation improvements qualify as R&D?
Potentially. Developing or testing new irrigation configurations, controls, delivery methods or related technologies may qualify when the work involves technical uncertainty and a qualifying process of experimentation.
Can farm buildings qualify for Cost Segregation?
Yes. Agricultural buildings and related improvements may contain assets with shorter depreciation recovery periods. Classification depends on the property's design, function and applicable federal depreciation rules.
How long is a grain bin depreciated?
IRS Publication 225 lists grain bins as 7-year property under the General Depreciation System.
How long are general farm buildings depreciated?
IRS Publication 225 lists general farm buildings as 20-year GDS property, while qualifying single-purpose agricultural and horticultural structures are generally 10-year property.
Work With RCG Tax Partners
RCG Tax Partners helps farms, growers, agribusinesses, agricultural manufacturers and agritech companies evaluate potential R&D Tax Credit and Cost Segregation opportunities.
The analysis focuses on the business activities, expenses, property and documentation relevant to the applicable tax rules.
Eligibility depends on the specific facts and circumstances of each business and property.
Contact RCG Tax Partners to discuss your agricultural research activities, facilities and potential R&D Tax Credit or Cost Segregation opportunities.
