Sometimes Not Deferring Is the Right Answer
Section 1231 Gains, 100% Bonus Depreciation, and When to Just Pay the Tax
We’ve covered Section 1033’s four-year deferral and the one-year cash-basis election. Both are real tools that save real money. But there’s a third path worth running the numbers on: skipping the deferral entirely, recognizing the gain at favorable capital rates, and wiping it out with 100% bonus depreciation on replacement cattle or equipment purchased in the same year.
We know that sounds backwards. “Pay the tax on purpose?” Stay with us. The reason this works is that raised breeding stock generates one of the most tax-favored categories of gain in the entire tax code — Section 1231 capital gain with zero basis — and the permanent restoration of 100% bonus depreciation creates a matching deduction you can deploy in the same year. Under the right conditions, these two provisions can roughly cancel each other out, leaving you with a clean, full-basis herd and no deferred tax hanging over you.
