Tax write off questions, accountants?

msmagooJanuary 15, 2012

DH is set to retire in 1/2013..although he will most likely move on to another job. He will be collecting his pension, a supplement to his pension(law enforcement), he will also receive a lump sum from his employment. I, on the other had will continue working (i am 48). We have a small mortgage, a grown daughter now on her own and a 16 yr old. We have a home on 10 acres. We have been thinking adding a fence, barn/building and cattle on this property. Can the cost of those improvements be written off if we use sched F on our returns for next year? If anyone has any other suggestions, I would really appreciate it.

Thanks!

Magoo

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hilltop_gw

Do a web search using the words hobby farm loss rule. For you to be able to deduct certain expenses you must be operating your farm as a business with the intent to earn an income. Is the fence functional or decorative? According to an extension service article I found online by Tom McConnell at West Virginia University " The IRS suggests a nine-point test that a taxpayer must consider when making that determination or defending his or her business practices and the worthiness of his deductions. This list has evolved in a "common law" fashion, meaning its origin is a simplification of the intent of many court decisions. You should take into account all of the following points to help prove that you are farming for profit.

1. You operate your farm in a businesslike manner. (As manager, do you have a business plan, have you set goals, do you keep records?)
2. The time and effort you spend on farming indicate that you intend to make a profit. (Do you spend sufficient time and energy on attaining that goal?)

  1. You depend on income from farming for livelihood. (Here, full-time farmers have an advantage, but the income issue relates more to the farmer's need for deductions than his or her dependence on farm income. Farmers having off-farm jobs to supplement their income depend on their farm income, too.)
  2. Your losses are due to circumstances beyond your control or are normal in the start-up phase of farming.
  3. You change your methods of operation. (You could begin to winter calves rather than sell them in the fall or finish cattle to slaughter weights; the income could be delayed several months.)
    6. You and your advisers have the knowledge to carry on the farming activity as a successful business. (Attending continuing education classes can offset perceived weaknesses in this area.)
  4. You made a profit in similar activities in the past.
    8. You made a profit farming in other years and can document how much you made.
  5. You can expect to make a future profit from appreciation of the assets used in the farming activity."

Ask your tax advisor. Some may be more willing to stretch the rules, but it's best to play it straight.

    Bookmark   January 19, 2012 at 7:23PM
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