Need help with farm tax deduction

[Ruark]

We own 25 acres, all of which is designated as agricultural by the county, and is ag exempt from county property taxes.

We do not own any livestock. However, we obtained the agricultural classification by allowing another person to graze his livestock on our property year round. He does this for profit, breeding and reselling the animals.

We have spent quite a bit of money maintaining the property, one of the primary purposes being to maintain its agricultural functioning: enhance the pastures, enlarge ponds, repair fencing, purchasing a tractor, etc.

Question: since we don't actually own the livestock, but are operating the "farm," as it were, can these maintenance/equipment costs be tax deductible as farm expenses? I have been getting contradicting opinions.

 

[dcyrilc]

We own 25 acres, all of which is designated as agricultural by the county, and is ag exempt from county property taxes.

We do not own any livestock. However, we obtained the agricultural classification by allowing another person to graze his livestock on our property year round. He does this for profit, breeding and reselling the animals.

We have spent quite a bit of money maintaining the property, one of the primary purposes being to maintain its agricultural functioning: enhance the pastures, enlarge ponds, repair fencing, purchasing a tractor, etc.

Question: since we don't actually own the livestock, but are operating the "farm," as it were, can these maintenance/equipment costs be tax deductible as farm expenses? I have been getting contradicting opinions.

If you charge for the use of the pastures, then most likely yes. If not, then definately not.

Farming is a type of business where the IRS is concerned. Think of it this way. If you have a friend who owns a business, his welder dies, and you loan him yours to use until he can replace it. Would you expect to be able to take a business deduction on the maintainance and upkeep of it? How about if you leased it to him? See the difference?

 

[merrickvilleguy]

I know up here I can't take my farm expenses off my day to day income, only off the farm income even though both operate under the same corporation. Gets very messy.

 

[Alan L.]

To the extent you enter into a lease or sharing arrangment for the purposes of making a profit at least some of the expenses might be deductible. However it is normal business practice for the one who runs the cattle to incur any expenses for upkeep, improving the pastures etc.

Based on the scenario you describe I doubt if you could deduct all of that, because there is no way you could make a profit if you are paying the guy's expenses.

The burden is on you to show a profit motive.

 

[whistlepig]

If you are paying taxes on income from your farm or property you certainly do have a right to claim some deductions. If you are not claiming any income the IRS is going to frown on deductions. On smaller farms one has to be careful to not have the IRS down on you. It's best to have the advice of a good tax accountant.

 

[ustmd]

If you are paying taxes on income from your farm or property you certainly do have a right to claim some deductions. If you are not claiming any income the IRS is going to frown on deductions. On smaller farms one has to be careful to not have the IRS down on you. It's best to have the advice of a good tax accountant.

DITTO.

Also, what state are you in? Are you looking to get deductions form your Federal Income Tax or State or both?