Remaining Farm Depreciation

[Christian]

A couple who have farmed for years basically just quit. They had no farm income nor expense last year other than depreciation remaining on a few pieces of equipment. Can I file the final Schedule F showing only the remaining depreciation as an expense item and , of course, will not have a Schedule F for next year's filing?

[Gail in Virginia]

If they did not use the farm equipment for farming, how can you deduct depreciation on it?

[Christian]

That's true Gail but it must be remembered they paid for this equipment in a given year and did not deduct the costs fully in that year. Normally when someone leaves farming I deduct remaining depreciation in that year. These folks simply sold their final animals and did not farm at all in 2015 which they failed to advise me that they were going to do or I would have taken the remaining depreciation on the 2014 return. I likely could place it on Schedule A but that will provide them no tax benefit.   

[jklcpa]

No, you don't get to write off the remaining undepreciated amount simply because the person stops farming. It is retired and out of service, and transferred to personal use if they kept it. The only time depreciation continues is if the property is temporarily idle due to a lack of market for the farm's product, otherwise depreciation stops at the time the equipment is no longer in service.

When the person sells the asset, they have basis to offset the selling price and will receive the benefit of that remaining amount you are currently trying to deduct. At the time of sale, it will result in higher basis, lower gain or more of a loss.

 

[jklcpa]

Pub 225 Farmer's Guide:

See page 37 under "Idle Property" and "Retired from Service"

and see page 55 for "Abandonment" for proper treatment of any assets beyond any usefulness that are scrapped and no longer owned.

[Lee B]

1 hour ago, Christian said:

That's true Gail but it must be remembered they paid for this equipment in a given year and did not deduct the costs fully in that year. Normally when someone leaves farming I deduct remaining depreciation in that year. These folks simply sold their final animals and did not farm at all in 2015 which they failed to advise me that they were going to do or I would have taken the remaining depreciation on the 2014 return. I likely could place it on Schedule A but that will provide them no tax benefit.   

You are not only pushing the envelope, you have completely shredded the envelope !

[Christian]

Alas. I try to help my folks. I have never had any problems deducting remaining depreciation likely because the amounts involved were not large. I will file jk's reply for future use. After seeing some of the work of now retired tax guys the small amounts of depreciation I took off are tiny potatoes compared to the thousands of dollars of farm losses deducted from the following year's Schedule F's and shown as excess farm losses. All of this in plain view and the Service never batted an eyelash.   Thank youall for your feedback.

[DANRVAN]

4 hours ago, Christian said:

 All of this in plain view and the Service never batted an eyelash.

The service never batted an eye because the service never took a close look at it. It was either electronically filed or inputted by a data entry clerk whose job description does not include examining tax returns.

Just last week I was talking to a "small farmer" who has been using turbo tax for 5 years. Her comment was "I must be doing it right since I have never heard back from the IRS."  (note: eye roll emoticon goes here).

[Christian]

I m sure you are right. Add  the fact that this particular retired taxman was 95 years old and had been likely filing farm returns this way since the 1970's and your eyes might pop from your head. I cannot resist a final word. Who among you ever met a small farmer who reported the sale of depreciated equipment? My late Uncle was an IRS field agent. He once was going to a farmer's residence and heard a shot fired so he dealt with the problem at a later date. Farmers in southern Virginia despise paying taxes. I hope youall have had a good season. 

[RitaB]

37 minutes ago, Christian said:

I m sure you are right. Add  the fact that this particular retired taxman was 95 years old and had been likely filing farm returns this way since the 1970's and your eyes might pop from your head. I cannot resist a final word. Who among you ever met a small farmer who reported the sale of depreciated equipment? My late Uncle was an IRS field agent. He once was going to a farmer's residence and heard a shot fired so he dealt with the problem at a later date. Farmers in southern Virginia despise paying taxes. I hope youall have had a good season. 

I like your final word.  I think Bob Farmer (not his real name) and I are the only farmers in this town who make money at farming.  Heck, we should both have rentals.  We'd show em how to make money at that, too.

[Gail in Virginia]

31 minutes ago, RitaB said:

I like your final word.  I think Bob Farmer (not his real name) and I are the only farmers in this town who make money at farming.  Heck, we should both have rentals.  We'd show em how to make money at that, too.

Do you both fertilize the back yard the same way?

[RitaB]

55 minutes ago, Gail in Virginia said:

Do you both fertilize the back yard the same way?

The grass is green on both sides of my fence!

[Lion EA]

No expense for fertilizer, that's why you have a profit.

[joanmcq]

What 'make money on rentals'?  I make money on my rentals!  Maybe I should try farming?