Presentation on theme: "ISSUES RELATED TO INCOME FROM SALE OF LIVESTOCK DUE TO WEATHER-RELATED CONDITIONS Timothy D. Bachicha, CPA Extension Farm Management Specialist Colorado."— Presentation transcript:
ISSUES RELATED TO INCOME FROM SALE OF LIVESTOCK DUE TO WEATHER-RELATED CONDITIONS Timothy D. Bachicha, CPA Extension Farm Management Specialist Colorado State University Cooperative Extension Telephone (719)852-2871 email firstname.lastname@example.org
TWO SEPARATE ISSUES: IRS Code section 451(e): Think Sales of Market Livestock - primarily IRS Code Section 1033(e): Think Sale or Exchange of Capital Asset Breeding Livestock, Draft or Dairy
Important points: 1. Election 2. Cash Basis Farmer 3. Forced to Sell 4. Area Designated 5.Under 451 – income recognized next year 6. Contrary to usual business practices
Must Attach Statement Basic information about taxpayer Evidence of weather related conditions Specific numbers and types of animals Normally sold (last three years) Sold this year Computation of income deferred
IMPORTANT Election must be made separately for each broad generic classification Hogs, Cattle, Sheep Not based on age, sex or breed
Why Defer Income? Federal Income Tax Brackets Time Value of Money Self-employment Tax Issues Social Security Limits on Earnings 2002 – $84,900 2001 - $80,400
Considerations Multi-year perspective Tax not main factor in decision Next Year? How does it fit with other elections? Sec. 179 ($24,000) 30% Bonus Depreciation Income Averaging
Replacement Property Similar or related in service or use Not = to Like-Kind definition …similarity in the relationship of the services or uses which the original replacement properties have to the taxpayer- owner.
Replacement, 2 Substantially similar property Substantial Continuation of prior commitment Character of Investment has not changed not necessarily duplicate Return as close as possible to his/her original position
Special Rule Related party transactions Realized gain <$100,000, deferral of gain is denied.
BOTTOM LINE Get competent professional advice Know your operation Know your plans Know what is available Not an easy decision
Colorado Tax Credit FYI – Income 55 Credit available to offset Colorado Tax 4.63% of amount actually deferred Under IRC Sec 451 – not 1033 Principal trade or business is farming Carry forward unused credits – 5 years