TIMELY TOPICS By Tom Stanley, Extension agent
The recently passed Federal Legislation entitled the “One Big Beautiful Bill Act of 2025” or “O3B” contains significant changes to the tax code that expand tax management opportunities for farmers. In recent weeks, this column has discussed anticipated higher than normal 2025 farm incomes for many part-time and full-time farms in Rockbridge thanks to exceptionally high cattle prices. Your columnist urges discretion and careful consideration for tax management choices this year and to take the opportunity to build cash reserves. Among the many choices for farmers to consider, a hay storage building might be a wise choice to reduce short term tax exposure, improve medium to long term risk management, and enhance long-term real estate value.
The tax advantages are found in new provisions of the “O3B” that expand depreciation options that, for most farm operations in Rockbridge, allow the farm to lower their exposure to tax by expensing the entire cost of a new hay storage shed in just one or two years. Options for the ‘Section 179 Depreciation’ and ‘Bonus Depreciation’ both afford a farm operation this option. Which one to choose depends on the taxpayer’s total income, their farm income, and the advice of a tax professional.
Your columnist urges farmers to consider investing in hay storage before investing in equipment because a hay storage shed has the potential to yield higher dividends in the medium to long run. If we assume a hay storage shed has dimensions of 30-ft X 60-ft, a round bale takes up 25 sq ft of floor space, and the bales can be stacked three high, we can estimate the shed can store a few more than 200 round bales. Round bales stored outside are likely to lose 15% to 40% of their value due to weathering. The severity of the loss depends on precipitation, ground on which the bales are set, length of time the bales are kept outside and a number of other factors. If storage under roof can reduce hay loss from 25% to 5%, and each bale weighs 900-lbs. that equates to 180-lbs. of hay saved in each bale multiplied by 200 bales comes to a total of 18 tons of hay saved. If the hay is worth $140 per ton ($63/bale) the savings for a single year of storage are $2,520. If the building is utilized to store hay for 20 years, the value of these savings today, adjusted for an assumed 5%-time value of money, is $31,000. Dividing this figure by the square footage of the building (1,800 sq ft) the building’s value in hay savings are $17.25 per square foot. This value does not account for savings gained for reserves of hay protected for longer than a year, the flexibility good hay storage provides a farm operation to purchase hay when supplies are strong and prices lower, and the reality at properly design storage shed will last far longer than 20 years. Hay storage structures can have very simple designs and can be priced competitively relative to the calculated savings combined with these other benefits.
Equipment purchases lose their value over a relatively short period of time and compel the stockman to pursue hay making and incur annual operating costs. This choice should be compared to the gains possible with improvements to extend the grazing season and/or taking opportunities to purchase hay at times of high supply.
For more information on decisions impacting cost of production for a farm contact the Rockbridge Extension office at (540) 463-4734 or send email to [email protected]
