First time dealing with livestock depreciation. (Tax time)

[cornstalk]

Hello all,

Have a few questions for anyone who would be willing to answer them.

Hypothetical situation as follows:

My wife and I are filing a joint 2004 tax return. In november of 2004 we purchased a half dozen bred heifers in order to establish a beef cow herd. I work full time, and my wife works part-time,.......while taking classes at a local university. She is considered to be a full-time student, and will qualify for education credits.

We are using Turbo Tax, and would naturally like to optimize our return. We will be depreciating the pickup used to tend to the herd, and have a few deductions for feed, fuel, ect.

The primary question is concerning section 179 depreciation. The way I/we understand it, is that section 179 allows us to depreciate the entire herd in the first year. The cost of these heifers far exceeded our tax liability. As I understand it, we can carryover the remainder of the section 179 deprieciation into the next year? Also, how will this effect our potential education credits? If the education credit will take care of nearly half of your tax liability,.......?

Kind of running in circles on this one.

Hoped that turbo tax would simplify the entire process,........but not sure.

Any help or advice would be appreciated.

 

[Subsoil]

It sounds like you'd be better off depreciating the cattle at 150% DB over a period of either 5 or 7 years. That way, you can get some tax benefits each year. No use using all of you deductions in one year.

If you use the 5 year method, you'd deduct 15% this year
If you you the 7 year method, you'd deduct 10.71% this year.

Next year your deduction would increase and then it would gradually decrease over the remainer of the depreciation period.

If you buy additional livestock (or a bull) next year, you might consider doing a sec. 179 on the new stock if your situation is different.

 

[Running Arrow Bill]

Our CPA Firm depreciates all of our "breeding" stock; calves born from our own cattle are essentially "capital gains" until they are sold. We do not take 179 depreciation of our stock.

Cattle are on 5 yr depreciation, horses are on 7 yr. Loafing sheds are 10 yr. Office Building is 20 year. Round Hay Rings are written off for the year they are bought. Well, is 7 yr. Fence is also 7 yr.

At least that is how our cpa firm is dealing with our stuff.

Deductions shouldn't exceed income. If they do, then you are loosing depreciation monies, that would have been better off deducted over a longer period of time instead of all in one year.

 

[Jeanne - Simme Valley]

The 179 deduction gives you the OPTION of deducting all or part of your cattle purchases (or any qualifying purchases.) So you need to decide how much if any you need to claim this year over & above the 1st year deduction.
If you bought 5 heifers for $1000 each. You could deduct one full heifer at $1000 or all 5 at $5000 or just $500 on one which would leave $500 on one heifer & $1000 each on the other 4 to be depreciated.
Did I muddy up the water???
Whatever you use this year as a 179 deduction, comes off the purchase price and you cannot use that amount for depreciation. But you are allowed to pick & choose how much you want to fully write off the year of purchase - up to a certain amount of $.

Sorry, don't know anything about education deductions. But the only way one item should effect the other, is if you needed to have so much taxable income to be eligible :shock: doesn't usually work that way. :lol:

 

[denoginnizer]

When yawl say you can depreciate how does that add up into real dollars saved. I am going to keep the numbers round for ease of use. Lets say your cow that you paid 1000 has a calf that sells for 500. If you depreciate the cow by 100%, or the max for one year, and you had no other deductions how much would your tax savings be versus if you had not depricated your cow at all?

I always hear people say tractor cost , feed, vet , etc. are tax teductible and I know they are right. However, I often wonder just how much a 100% tax deduction equals in lessening the amount of the tax check I have to pay to Uncle sam.

 

[dun]

I can't tell you the actual dollars, but anything that you don't have to pay uncle is worth while, even if it's only a buck or two.

dun

 

[D.R. Cattle]

If memory serves me, Arnold Ziffle is the tax professional. Probably the reason we aren't hearing from him- tax season.

 

[Jeanne - Simme Valley]

You look at the tax schedule - look at your taxable income. If you decrease your taxable income by $5000 - look at the tax table again & see the difference. It's whether you want to decrease your income this year, or spread it out over the next few years. Your call - everyone is different.

 

[Subsoil]

Deno - if you write off a $1000 cow (in one year) and your tax rate is 15%, you'd save $150 in taxes. If your tax rate is 25%, you save $250 dollars in taxes. The more money you make and the higher your tax bracket, the more you save. If you depreciate the cow over 7 years, you would just spread the saving over that period but the savings would be the same (assuming the tax rate remains the same).

 

[sidney411]

Ok, I bought 15 cows on a 4 year loan last year. Can I still depreciate them for 5 years? Would I use the amount I paid for the cows or the amount the total loan will be at the end ( with interest added ).

Also, if I bought a bull in '04 and sold the same bull in '04 for less then I bought him for would I depreciate the entire cost of the bull for that year then put the amount sold for in as profit, or take the differerce in bought and sold as a loss?

Is there any way you can claim a calf death as a loss if the cow was bought as 'bred'?

 

[Running Arrow Bill]

Ok, I bought 15 cows on a 4 year loan last year. Can I still depreciate them for 5 years? Would I use the amount I paid for the cows or the amount the total loan will be at the end ( with interest added ).

Also, if I bought a bull in '04 and sold the same bull in '04 for less then I bought him for would I depreciate the entire cost of the bull for that year then put the amount sold for in as profit, or take the differerce in bought and sold as a loss?

Is there any way you can claim a calf death as a loss if the cow was bought as 'bred'?

Probably best to check with a CPA. "Tax Service People" or Computer software programs don't always have the best & most accurate advice. Better be safe than sorry. CPA's don't cost that much more (providing you "summarize" your info for them first) for a much higher level of expertise and peace of mind (for you).

 

[Subsoil]

Ok, I bought 15 cows on a 4 year loan last year. Can I still depreciate them for 5 years? Would I use the amount I paid for the cows or the amount the total loan will be at the end ( with interest added ).

Also, if I bought a bull in '04 and sold the same bull in '04 for less then I bought him for would I depreciate the entire cost of the bull for that year then put the amount sold for in as profit, or take the differerce in bought and sold as a loss?

Is there any way you can claim a calf death as a loss if the cow was bought as 'bred'?

You can either do section 179 and depreciate them in one year or you can do it over a period of 7 years. The loan period has nothing to do with taxes. However, you can also deduct the interest on the loan each year, even if you write off the cattle all in one year.

Get the publication "Farmers Tax Guide" or read it here:
http://www.irs.gov/publications/p225/index.html

 

[cornstalk]

You cannot write off more than your liability however....... correct ?

Lets just say my tax liability is $2500. If I section 179 my 7 hiefers....once my tax liability hits zero, does the rest carry over for as many years as it takes to hit the value of my cows ?

Also, does anyone know how I can view my schedule F on turbo tax? I can view the "tax summary", and my 1040,......but I cant seem to view my schedule F?

Thank you.

 

[sidney411]

Thanks for posting that link, there is a lot of useful information on there. I am also trying to use turbo tax fo rthe first time and my depreciation forms won't come up. I guess I will have to figure those by hand.