Excess Farm Loss Carryover

[Christian]

A new client came in awhile back. In reviewing his Schedule F I noted an entry on line 32 Excess

Farm Loss Carryover with an amount in excess of S150,000. After running the figures for 2013 I

found the client had a farm profit over $50,000 for 2013. His previous preparer simply totaled all his expenses PLUS the excess farm carryover loss deducting them from his sales. On line 34 he simply showed zero. This is something I have never seen. Most farmers with whom I deal deduct farm losses from other income they have over on Form 1040. The client had other income on his Form 1040 but there is no entry shown on line 18. Am I missing something here ? This client has a routine cattle farm noting fancy.

[RitaB]

Sounds like preparer had a God complex. Is this the preparer who who met his Maker and you got the farmer? I can't believe the taxpayer has not been audited. Well, yes, I can.

I got some clients from a preparer/preacher who did everything by hand. Put church donations on the back of Schedule C. Even called them "Church Contributions". Go figure. Might as well be bold as a lion. Everybody she had got audited. She was in jail for a while, has gone on to be with the Lord now.

[kcjenkins]

PLEASE do not 'follow' what that person did, it is totally wrong.  A farm loss goes to page 1 of the 1040, where it may create an NOL, or not, depending on what else is on the 1040.  Then, if there is an NOL, it's treated just like any other NOL.  My guess is that the idiot doing the return did that so that the excess loss could offset SE tax on the future year.  Many farmers get angry that, in a business with many ups and downs, good years and terrible years, they pay SE tax in the good years, but they can't use their losses to reduce the SE tax in the next year.  

 

I agree with their pain, but that's just 'how it is'.   

[Christian]

That was my understanding KC. I figured he made a significant mistake He was a grandson who had bought out his grandfather's long established tax practice. Now after two years he has quit and is "out of the country" leaving this mess and not a few farmers without any attached depreciation schedules until such time as he reappears.    What a year this one has been !

Edited April 3, 2015 by Christian

[Christian]

Needless to say I'll let the Service adjust that loss discrepancy for 2013 if they ketch it.

[Christian]

I could not let the season close without adding this info. I talked with the grandfather age 95 who had been doing taxes since 1972.

Apparently he deducted carryover farm losses as an expense item on the succeeding year's return Schedule F thus his clients avoided paying self employment as well as income tax. In 40 years plus no apparent audits related to this practice. So much for the vaunted IRS who is gonna get you !!! This error was right in front of any Service employee. I have always wondered why the old farmers I served drew such meager social security benefits. NOW I KNOW WHY ! 

[RitaB]

Holy cow.

[Lion EA]

Do you raise those on your farm?

[RitaB]

Do you raise those on your farm?

Tell you what, that little heifer (and I mean that in the sweetest way possible) that we've been bottle feeding since Valentine's Day sure is an angel. She lost tips of ears and half of tail due to frostbite, but she's still a looker, too. I tell her it's vogue, and all the other calves are jealous. :)

Edited April 6, 2015 by RitaB

[Lion EA]

I think you need to go out on a date!

[Christian]

I can state unequivocally a lot of interesting critters are raised on farms in Virginia. And, I did not realize Rita (who looks vaguely familiar) and Gail who looks as if she might be a cuz are from Virginia. 

[Christian]

​OOPs ! Rita is from Tennessee.   It's been a LONG three months. 

[DANRVAN]

I could not let the season close without adding this info. I talked with the grandfather age 95 who had been doing taxes since 1972.

Apparently he deducted carryover farm losses as an expense item on the succeeding year's return Schedule F thus his clients avoided paying self employment as well as income tax.

Now that is creatave accounting; modify the tax code to benefit your clients!

[JoeB]

Saw this old thread and wanted to help clarify.  As I understand, an "ordinary" farm loss from Schedule F goes on Form 1040, page 1 and, if it creates an NOL after offsetting any other income, must be carried back 5 years and forward for 20. 

On the other hand, if an "excess farm loss" exists (Farm losses capped at $300,000 if receiving applicable subsidies), this excess loss is carried forward to the subsequent tax year and treated as a deduction from that year.  In the case of an excess farm loss, how does the group reflect the excess farm loss on the return for the subsequent year?

Great topic!

[DANRVAN]

1 hour ago, JoeB said:

On the other hand, if an "excess farm loss" exists (Farm losses capped at $300,000 if receiving applicable subsidies), this excess loss is carried forward to the subsequent tax year and treated as a deduction from that year.  In the case of an excess farm loss, how does the group reflect the excess farm loss on the return for the subsequent year?

Great topic!

I have never had to apply the $300,000 limit rule. The instructions to Schedule F indicate it goes on line 32 as other expense. There are several worksheets to use depending on your situation.

Welcome to the Board.

[JoeB]

1 hour ago, DANRVAN said:

I have never had to apply the $300,000 limit rule. The instructions to Schedule F indicate it goes on line 32 as other expense. There are several worksheets to use depending on your situation.

Welcome to the Board.

That is my understanding as well.  Just wanted to clarify as it appeared some of the posters may have confused excess farm loss with an NOL generated by farming activities.

Essentially, excess farm losses are is treated similar to a non-business capital loss that carries over annually, not to exceed a $3,000 loss.