Farm and Ranch Provided Housing
Many farmers and ranchers provide housing for their employees. Farmers who participate in H2A temporary labor from other countries have certain requirements to provide this housing.
By providing this housing, there are certain tax advantages that may accrue to the farm or ranch. First, if the employee being provided the house is not an owner or related to the owner, the farm or ranch is allowed to depreciate the cost of the home over 20 years and all of the related costs of furnishing the home and supplies needed for the upkeep of the home. If furniture is purchased, you cannot take section 179 on it, however, you are allowed to depreciate the cost (likely over seven years).
Additionally, since 50% bonus depreciation has been extended to 2017 (40% in 2018 and 30% in 2019), building a new house for your employees in 2015-2017 allows you to immediately deduct 50% of the house when it is placed in service plus depreciate the remaining portion over 20 years. A farm or ranch provided housing is a farm building. Many people assume that this must be depreciated over 27.5 years since it is a residence. The 27.5 year rule is for rentals of residential property. This is a farm or ranch building, therefore, it is depreciated over 20 years and allowed for 50% bonus depreciation.
Now, the rules for housing provided to owners is not as good. You must have an employer-employee relationship and the only entity that is allowed this relationship under the tax code is a regular corporation. A partnership, sole proprietor or S corporation cannot provide and deduct employee related housing for any of its owners (unless they own less than 2% AND are not related to any other owners). Therefore, this is one of the few reasons why a farm or ranch may operate as a C corporation is to take advantage of deducting employer-provided housing (including deducting 50% of a new home).
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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