The tax ramifications of raising livestock on leased land vs owned land will look different.
Regardless of owned vs leased, livestock may be considered inventory (raised for sale), or depreciated based on use (kept for breeding or dairy). Breeding and diary cattle are 5 year property. Generally you wouldn't start depreciating an animal right away if it's immature; the in service date would be when the animal reaches maturity -- i.e. when able to be bred or when able to be milked, whatever is applicable.
On owned land, single-purpose agricultural structures are 10 year property and multi-purpose agricultural structures are 20 year property (as opposed to 39 year for commercial buildings). Land improvements are 15 year property. All 20 year or less property can be immediately written off under the new Tax Cuts & Jobs Act (TCJA) 100% bonus depreciation rules. Note bonus depreciation may create federal-state tax differences because not all states conform to federal bonus depreciation.
Machinery and equipment, grain bins, and fences used for agricultural activities were 7 year property. The TCJA changed these to 5 year property if purchase new (as opposed to used) and placed in service after 12/31/18. If bought used and placed in service post 12/31/18, the old 7 year recovery period would apply.
More to consider surrounding tax entity selection, the TJCA interest limitation, impact of farming tax elections, S179 vs bonus vs depreciation, method of accounting (cash vs accrual), how to account for and track individual cow cost basis, and expensing vs capital expenditure. Best to talk to your CPA or start looking for one to add to your team as an external partner.
Thank you for your very detailed and helpful response, your advice is most appreciated. You have already provided a great deal of information and we do not wish to take up more of your time. However if you or anyone else can offer thoughts on the following questions, we would be very grateful.
In one of the opportunity scenarios we are considering, we may lease land for custom grazing, however we would be responsible for installing perimeter and cross fencing for the pastures that we will need for our herd. In this case, are we able to depreciate fencing and or other equipment that we purchase and install on someone else land?
We are seeeking an agriculture tax expert for consulting purposes, preferably a CPA who is familiar with MT and the bison producing industry. All referrals are welcome.
@Michael Botha "In this case, are we able to depreciate fencing and or other equipment that we purchase and install on someone else land?"
Yes, generally speaking you would expense/bonus/depreciate those improvements as applicable even though the land is leased. There are exceptions if related parties are involved, but it sounds like you'll be leasing from a third party in an 'arms-length' transaction. When the lease is terminated, if any assets still have tax basis and can't be taken with you (e.g. fencing), you would take a loss on disposal to recover the remaining tax basis.
Note that in my previous comment "12/31/2018" should be "12/31/2017", and agricultural grain bins and fences are still 7 year property post TCJA. Agricultural machinery and equipment not including cotton gins, grain bins, and fences is 5 year property now if purchased NEW. If purchased USED, 7 year property. It must have been late when I typed that...
Lots of tax incentives under the TCJA for small agricultural operations (less than $25 million gross).
Thank you for your detailed explanations, sounds like you are very familiar with the new tax law. Really appreciate you taking the time to respond to my questions.