No tax plan—no matter how well designed—can substitute for the fundamentals of a comprehensive farm succession plan: solid communication, clear expectations, planned leadership transition and the willingness to have honest conversations across generations. All of these things matter.
That said, I’m also a realist. And like most farmers, I don’t believe in giving Uncle Sam more than he deserves.
Which brings me to a commonly overlooked—and still relatively unknown—opportunity for many farm operations: the Federal Research & Development (R&D) Tax Credit, often referred to as the Section 41 credit.
Innovation happens on farms every day
When people hear “research and development,” they often think of laboratories and scientists. Farmers know better. Agriculture has always been built on experimentation, adaptation, and continuous improvement.
Producers annually test new hybrids, adjust fertility programs, try biologicals, modify equipment and evaluate new management practices to see what performs best under their own conditions. That process—testing, evaluating and refining—is exactly what the R&D credit was designed to reward.
R&D does not require a breakthrough discovery or a failed experiment. It requires technical uncertainty, a process of evaluation, and an effort to improve performance. Many conventional row-crop and livestock operations meet these standards without realizing it.
Timing matters
Recent changes in tax law have made the R&D credit more valuable—and more time-sensitive.
Eligible farms can now retroactively claim R&D tax credits back to 2022 but be mindful of this important catch: Those credits must be claimed with your 2025 tax return.
For many farmers that means a March 1 filing deadline unless an extension is filed. Miss that window, and the opportunity to capture prior-year credits may be lost permanently.
This is not about speculative future planning. It’s about recognizing and documenting innovations you’ve already put into practice.
What qualifies as R&D on a farm?
Many everyday farm decisions may qualify, including:
- Planting new-to-you corn or soybean hybrids or varieties
- Testing different genetics across fields or seasons
- Adjusting fertilizer rates or trying new nutrient products
- Experimenting with new chemicals or biologicals
- Making equipment modifications to improve efficiency
If uncertainty is involved and you are evaluating outcomes to improve yield, efficiency or profitability, you may already be doing qualifying work.
Importantly, a portion of properly documented related input costs, including seed, fertilizer and crop protection, may be eligible as qualified research expenses.
Consider this corn scenario
Consider a Midwest corn and soybean operation farming approximately 5,000 acres. Annual gross receipts ranged from $3.5 to $4 million, with roughly $2.2 million in total input costs.
By documenting their experimentation with new hybrids, fertilizers, and chemical programs—standard agronomic decisions made to improve performance under their specific conditions—the operation was able to claim a portion of those input costs as qualified research expenses.
The result: $319,000 in combined federal and state R&D tax credits.
This was not a specialty research farm. It was a disciplined operation doing what many producers already do every season: Testing, learning and adapting.
From the perspective of farm succession
R&D tax credits won’t fix poor communication between generations. They won’t resolve disagreements about control, compensation or timelines. And they won’t replace the work required to build trust and alignment in a succession plan.
But they can improve cash flow, strengthen the balance sheet and free up capital, all resources that often make the rest of succession planning easier. Less financial pressure creates more room for patience, collaboration and long-term thinking.
Succession planning is about more than taxes. But smart tax planning still matters—especially when it rewards innovation you’re already practicing.
If you want to understand more about what these credits mean for your farm and how to document and capture them, send me an email. I can introduce you to companies that offer a complimentary assessment. They’ve helped farmers capture a total of over $2 billion in these credits! You could add your operation to that list.
Downey has been consulting with farmers, landowners and their advisors for nearly 25 years. He is a farm business coach and manager of succession planning at UnCommon Farms. Reach Mike at mdowney@uncommonfarms.com.