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Question for the board

I really don't know, could it possibly be when an investor thats never seen a cow, buys a bunch as a part of his portfolio, at least on paper, and they have calves and he cashes out his portfolio????
 
lefty said:
I think its raised cattle over 2 years of age
Click to expand...

Yeah, I think lefty is right.

Ranch raised livestock over 2 years can be taxed as capital gains.
When I culled hard last fall my tax man took 'em that way and it saved me quite a bit percentage wise instead of having to pay that SSI tax on that amount.
 
i thought they changed that quite a while ago?!

very interested in knowing!

i think on cows we bought and had pretty much depreciated out, if you gotta 'recapture' the depreciation it ain't no fun.
 
Capital gains tax rate (15%) is on property~cattle included~that is held 2
years or more before being sold.
Anyhow that's the way it was explained to me.

However, I talked to an accountant in Oklahoma that didn't think cattle
qualified for capital gains tax. I told him they sure do in Montana. :wink:
 
Form 4797. Sales of livestock held for draft, breeding, sport, or dairy purposes may result in ordinary or capital gains or losses, depending on the circumstances. In either case, you should always report these sales on Form 4797 instead of Schedule F. See Livestock under Ordinary or Capital Gain or Loss in chapter 8. Animals you do not hold primarily for sale are considered business assets of your farm.

from chap 3, Farmer's Tx Guide. http://www.irs.gov/pub/irs-pdf/p225.pdf

Holding period. The sale or exchange of livestock
used in your farm business (defined below)
qualifies as a section 1231 transaction if
you held the livestock for 12 months or more
(24 months or more for horses and cattle).

From chap 8

All breeding cattle sales bypass Schedule F, thereby avoiding Soc. Sec. txs. Breeding cattle sales from cattle held over 2 yrs. eventually end up going to Sch. D, Capital Gains.
 
I hope this isn't a stupid question. WDCook's post specifically says"breeding stock". Does this mean that if you sell your cows in a regular slaughter sale, they won't be classed as capital income? I am thinking about the cows that are culled from the herd every year. Or is this about a herd dispersal?
 
you could sell steers over 2 years of age & it would be CGs .
cull bulls old cows what ever .raised cattle over 2 years of age .
A guy I logged for for many years told me you cant get ahead given a 3rd of it away !!!!!!!!!!!!!!
 
OK. Up here we have an exemption on our first $500,000 lifetime capital gains. I agree that you cant give a 3rd of your sales away. Do you have a tax exemption on capital gains in the USA? Or does each state run by its own rules regarding capital gains? I think in Canada the sale of cows is income, but I will check with accountant.
 
Sale of Raised Breeding, Dairy or Draft Animals
Farmers and ranchers often keep replacement heifers or draft animals from their own breeding
herd to replace culled animals or to naturally increase the size of their operations. The farmer
and rancher must report the sales of these animals for income tax purposes. Frequently,
however, an easy and common error can be made on the individual's tax return. That error is
failing to recognize that these mature animals are treated as the "sale of business property" and
are qualified as IRC Section 1231 property. Being classified as Section 1231 property allows for
favorable tax treatment. Property qualifying as Section 1231 is treated as being a "capital" good
if the transaction triggers a gain. Further, if the taxable event triggers a loss then the loss is
treated as an ordinary loss not subject to any capital loss limitations. Simply said, Section 1231
property enjoy the best of both worlds from an income tax perspective. The required holding
period is 24 months from the date of acquisition (birth for raised animals) for beef or dairy cattle
and horses for Section 1231 treatment. Sales of these animals are not reported on Schedule F,
Profit or Loss from Farming, which is where the mistake is made, resulting in a tax liability that
is too high. Because these animals are not reported on Schedule F the gains escape selfemployment tax and if a net gain is determined on all IRC Section 1231 transactions capital
gains treatment results.
Cattle held for breeding or dairy purposes that do not meet the required holding period (24
months) still escape self-employment taxation, however, these sales are subject to ordinary
income tax rates.
Click to expand...
 
Here is one source of information:

http://www.ces.uga.edu/Agriculture/agecon/pubs/AGECON%2011-002.pdf

Holding Period
The period of time that a breeding animal is held by the taxpayer determines whether a gain in excess
of recapture of depreciation (capital gain) on the sale or other disposition will be treated as a short-term
gain or a long-term gain. The holding period which must be exceeded for a gain to be considered a
long-term gain is 12 months for hogs, and 24 months for all other livestock.

"Quick Reference" for Livestock Sales Reporting


Category ******* Rules ******* Where Reported


Livestock held in the ordinary course of business (Market Livestock) *** Not § 1231 property, subject to S/E tax *** Schedule F (Form 1040)


Livestock held for breeding, but holding period not met *** Not § 1231 property, not subject to S/E tax *** Form 4797 Part II


Livestock held for breeding, holding period is met *** § 1231 property, not subject to S/E tax


a. Raised animals and purchased animals sold at a loss *** No depreciation *** recapture Form 4797 Part I


b. Purchased animals sold at a gain *** Subject to depreciation recapture
and unrecaptured § 1231 loss rules ***Form 4797 Part III

IRSchart2800x600-1.jpg
 

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