I'm selling a farm in DE, bought one in MO. My accountant tells me cattle are not a capital investment, but I thought I had read some of you discuss that in the past and wondered if any of you had better information.
thanks.
thanks.
are cattle a capital investment?
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Mike
Well-known member
definition of capital investment:
Money spent by a company to add or expand property, plant, and equipment assets, with the expectation that they will benefit the company over a long period of time (more than one year). Also called capital outlay.
Since you can depreciate them, I would think they would be classified as a capital investment. I could be wrong too.
Money spent by a company to add or expand property, plant, and equipment assets, with the expectation that they will benefit the company over a long period of time (more than one year). Also called capital outlay.
Since you can depreciate them, I would think they would be classified as a capital investment. I could be wrong too.
cowzilla
Well-known member
Cows usually depreciate in value when sold (because of age ) but you cannot claim depreciation on them like you can on machinery.In Canada tractors and combines are 30% and most equipment pulled behind are 20% allowed tax depreciation. If you could claim depreciation on cows over 10 years and then sold them wouldn't you have to pay capital gains TAX on the difference? 
Cowpuncher
Well-known member
Cattle are definitely a capital investment and they can be depreciated based on the MACRES depreciation schedules provided by the IRS.
Of course, if you raise your own breeding stock and don't capitalize the cost, you can't depreciate them.
If you have a lot of cattle and don't keep detailed records, death losses and burned out cows are not easy to reconcile to cost records. I had a long discussion over this with the IRS and finally, they just kind of went away.
What the advisor is probably trying to tell you is that you can have a land exchange between DE and MO, but that it applies to real eastate only, not to livestock and equipment. You can trade cattle for like kind (angus for charlais, for example) without any tax consequences. But if you sell the cattle and take the money, it becomes taxable.
Your accountant should know this or he doesn't know much about the agriculture business and the applicable provisions of the Revenue code
Of course, if you raise your own breeding stock and don't capitalize the cost, you can't depreciate them.
If you have a lot of cattle and don't keep detailed records, death losses and burned out cows are not easy to reconcile to cost records. I had a long discussion over this with the IRS and finally, they just kind of went away.
What the advisor is probably trying to tell you is that you can have a land exchange between DE and MO, but that it applies to real eastate only, not to livestock and equipment. You can trade cattle for like kind (angus for charlais, for example) without any tax consequences. But if you sell the cattle and take the money, it becomes taxable.
Your accountant should know this or he doesn't know much about the agriculture business and the applicable provisions of the Revenue code
Very interesting, looks to be quite a difference between Canada and the US.
That is a question that comes up at times regarding cow-calf budgets, is should we also include cow depreciation, as a cost to the enterprise.
What does everyone think?
Becomes more of a factor in Canada since BSE.
That is a question that comes up at times regarding cow-calf budgets, is should we also include cow depreciation, as a cost to the enterprise.
What does everyone think?
Becomes more of a factor in Canada since BSE.
As for me, the only deduction I take on a cow is when I sell her. If I raised her, it is all income. If I bought here the deference between the purchase price and the sale price is either a gain or a lose.
Is there a better way to do it?
Can I take an act 179 on her cost in the purchase year?
Is there a better way to do it?
Can I take an act 179 on her cost in the purchase year?
We are selling our whole herd of older cattle and going with all new cattle. We are going to be pretty selective the the new herd. What is our best bet to avoid paying so much in taxes? Can we sell and buy back without showing the old herd as profit?
Cowpuncher
Well-known member
You can trade a herd of old cows for a herd of new cows without tax consequences as long as the new cows are worth more than the old ones,( Or at least as much.)
If I were going to do this, I would identify the replacement cattle and have a third party buy them. Make sure there is evidence of ownership. The third party can trade you the new cows for the old ones and you won't have a taxable transaction. Your new cows will have the same basis as the old ones. If they were totally depreciated, the new ones will be as well and you will not be able to depreciate them. The third party will sell your old cattle and recognize a gain or loss on the transaction unless the amounts are exactly the same.
Cattle are also qualified for Section 179 treatment - - totally deductable in the year acquired up to the current limit of about $105,000 per year. This limit is in effect for only a few years and will drop to something in the $25,000 range in a year or so.
We have used the Section 179 deduction (and it passed audit) for the past two or three years. The problem is that our cow herd is rapidly aproaching zero for depreciation purposes.
I used to know a whole lot about US taxes as I was Tax Compliance Manager for an oil company. This has been a while ago and if you are going to make a major decision based on what I have said, review it with some with current tax experience is agriculture.
Cowpuncher
If I were going to do this, I would identify the replacement cattle and have a third party buy them. Make sure there is evidence of ownership. The third party can trade you the new cows for the old ones and you won't have a taxable transaction. Your new cows will have the same basis as the old ones. If they were totally depreciated, the new ones will be as well and you will not be able to depreciate them. The third party will sell your old cattle and recognize a gain or loss on the transaction unless the amounts are exactly the same.
Cattle are also qualified for Section 179 treatment - - totally deductable in the year acquired up to the current limit of about $105,000 per year. This limit is in effect for only a few years and will drop to something in the $25,000 range in a year or so.
We have used the Section 179 deduction (and it passed audit) for the past two or three years. The problem is that our cow herd is rapidly aproaching zero for depreciation purposes.
I used to know a whole lot about US taxes as I was Tax Compliance Manager for an oil company. This has been a while ago and if you are going to make a major decision based on what I have said, review it with some with current tax experience is agriculture.
Cowpuncher
Sandhusker
Well-known member
Cattleman said:
I think you might want to be careful what you wish for. A "perfect" system would probably require tax information kept on each individual cow (bought, raised, where at in depreciation cycle, dead, sold early as dry, traded with the neighbor, etc...)
Sandhusker, don't talk of such frightening ideas!!
But I am more talking about depreciation in a budget in terms of economic analysis versus tax reasons.
When figuring out COP for a cow-calf enterprise, should we include depreciation?
But I am more talking about depreciation in a budget in terms of economic analysis versus tax reasons.
When figuring out COP for a cow-calf enterprise, should we include depreciation?
Haytrucker
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I'm not sure how anyone does this deal, but me; if it were'nt for depreciation, I'dve starved the last six years. The question regarding breeding stock and taxes is answered simply by the ranch of origion; did you buy them or raise them. Consult your paid tax professional for details, if you don't have one (paid tax professional) better get one. I realize I'm over-simplyfing, I hope, if not, then on deaf ears...
