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<blockquote data-quote="Arnold Ziffle" data-source="post: 173530" data-attributes="member: 43"><p>Seems to be a bit of a semantics problem here. Alan, technically speaking there is no way that principle payments constitute income to the payer! I think what you and a few others are really trying to say here is something along the following lines (for non-hobby situations):</p><p></p><p>Purchased cattle can be written off for income tax purposes over 5 years under the general depreciation rules. If certain conditions are met, and the taxpayer so chooses, the entire cost of the cattle can be written off in the year purchased, pursuant to IRC Section 179. Taxpayer's in many cases can fine tune the depreciation taken by means of various elections, methods of depreciating, etc. --- the particulars of which most non-tax professionals probably will be unfamiliar with. </p><p></p><p>If one pays interest expense on a loan used to purchase cattle, the interest expense is deductible. Principle payments on the loan will of course have to be paid from time to time. The taxpayer has to get cash to pay such principle payments one way or another: from accumulated savings, gifts from parents or other benefactors, cash generated from wages or other investments, or cash generated from the sale of other cattle, hay, etc. Cash generated from the sale of livestock, hay, etc. is of course taxable income --- so unless you have accumulated savings, receive gifts, etc. you will have to generate taxable income (say from cattle, hay, etc. sales) in order to have cash to pay your principle payments. So I guess in that sense one could surmise that making principle payments equates to having income --- Alan, is that the idea you were really trying to convey?</p><p></p><p>Also, many individuals wrongly feel they should be entitled to a tax deduction because of the death of a raised animal, even though they have deducted every single dollar spent on that animal for feed, vets, medicine, pasture rent, etc. They feel that way because they sure know they have incurred an economic loss on the death -- but it just doesn't rise to the level of a loss for tax purposes. I'd say that virtually 99.5% of taxpayers cannot take a tax deduction for the value of raised animals that died, nor can they take a deduction for the cost of purchased animals that die if they have previously written off the cost via depreciation deductions. Death of an animal can only result in a tax loss to the extent of the "tax basis" of the animal, and "tax basis" is calculated by taking original cost (virtually always the purchase price) less the accumulated dereciation claimed. ( A very, very few taxpayers do not deduct the costs of raising calves for income tax purposes, but rather "capitalize" them; and having done so they then have "tax basis" in those calves).</p><p></p><p>By the way, Alan, if you want to write off the entire cost of the animal in the year of purchase you must not merely do so by taking a deduction directly on Schedule F --- rather, you must make an election to depreciate the animal 100% in that year pursuant to Section 179, using Form 4562 to do so. The depreciation claimed on Form 4562 then carries over to a line on Schedule F.</p></blockquote><p></p>
[QUOTE="Arnold Ziffle, post: 173530, member: 43"] Seems to be a bit of a semantics problem here. Alan, technically speaking there is no way that principle payments constitute income to the payer! I think what you and a few others are really trying to say here is something along the following lines (for non-hobby situations): Purchased cattle can be written off for income tax purposes over 5 years under the general depreciation rules. If certain conditions are met, and the taxpayer so chooses, the entire cost of the cattle can be written off in the year purchased, pursuant to IRC Section 179. Taxpayer's in many cases can fine tune the depreciation taken by means of various elections, methods of depreciating, etc. --- the particulars of which most non-tax professionals probably will be unfamiliar with. If one pays interest expense on a loan used to purchase cattle, the interest expense is deductible. Principle payments on the loan will of course have to be paid from time to time. The taxpayer has to get cash to pay such principle payments one way or another: from accumulated savings, gifts from parents or other benefactors, cash generated from wages or other investments, or cash generated from the sale of other cattle, hay, etc. Cash generated from the sale of livestock, hay, etc. is of course taxable income --- so unless you have accumulated savings, receive gifts, etc. you will have to generate taxable income (say from cattle, hay, etc. sales) in order to have cash to pay your principle payments. So I guess in that sense one could surmise that making principle payments equates to having income --- Alan, is that the idea you were really trying to convey? Also, many individuals wrongly feel they should be entitled to a tax deduction because of the death of a raised animal, even though they have deducted every single dollar spent on that animal for feed, vets, medicine, pasture rent, etc. They feel that way because they sure know they have incurred an economic loss on the death -- but it just doesn't rise to the level of a loss for tax purposes. I'd say that virtually 99.5% of taxpayers cannot take a tax deduction for the value of raised animals that died, nor can they take a deduction for the cost of purchased animals that die if they have previously written off the cost via depreciation deductions. Death of an animal can only result in a tax loss to the extent of the "tax basis" of the animal, and "tax basis" is calculated by taking original cost (virtually always the purchase price) less the accumulated dereciation claimed. ( A very, very few taxpayers do not deduct the costs of raising calves for income tax purposes, but rather "capitalize" them; and having done so they then have "tax basis" in those calves). By the way, Alan, if you want to write off the entire cost of the animal in the year of purchase you must not merely do so by taking a deduction directly on Schedule F --- rather, you must make an election to depreciate the animal 100% in that year pursuant to Section 179, using Form 4562 to do so. The depreciation claimed on Form 4562 then carries over to a line on Schedule F. [/QUOTE]
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