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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15016
Experience:  15years with H & R Block. Divisional leader, Instructor
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I have had a farm and ranch last year, just really starting

Customer Question

I have had a farm and ranch for the last year, just really starting to set up. Have not had income this year, just expense, feed, etc for horses, and fences, etc for ranch, would these expenses still be allowed to be deducted
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.

Hello,

You can generally deduct the current costs of operating your farm. Current costs are expenses you do not have to capitalize or include in inventory costs. However, your deduction for the cost of livestock feed and certain other supplies may be limited. If you have an operating loss, you may not be able to deduct all of it.

The fences would be a capital cost and depreciated.

If you report your income and expenses under the cash method of accounting, you cannot deduct in the year paid the cost of feed your livestock will consume in a later year unless you meet all the following tests.

If they are met then you can deduct.

  1. The payment is for the purchase of feed rather than a deposit.

  2. The prepayment has a business purpose and is not merely for tax avoidance.

  3. Deducting the prepayment does not result in a material distortion of your income.

You really may want to get a professional to complete the first Schedule F for you. Then you can use the first as a blue print for the next year.

​Please advise if you need more information or rating in a positive way is acceptable.