FENCE GRANT

[TAXMAN]

TP owns about 42 acres. No farming or business run on property. TP received ok to construct fences along drainage ditches and water runoff ditches. TP in the future wants to graze cows on property. TP spent 37k out of pocket to erect fences. Applied for and received grant money to reimburse. Problem is Depart of Agriculture issued a 1099 for the amount. How would you show this on return? BTY IRS transcript does show this 1099.

[Evan S. Golar]

I would net the grant money against the $ 37,000 cost and depreciate on the net amount. Show the 1099 amount on line 21, then back it out and note how it was reflected on the tax return.

[Lee B]

I had a client in a very similar situation several years ago receive a state grant to reimburse him for brush control.

He also received a 1099, which I reported as misc income.

[Lee B]

3 hours ago, Evan S. Golar said:

I would net the grant money against the $ 37,000 cost and depreciate on the net amount. Show the 1099 amount on line 21, then back it out and note how it was reflected on the tax return.

Where are you going to deduct the depreciation ?

What if the cow grazing never happens ?

 

[Edsel]

This client has a basis in the fence of $37,000 (if this was the amount he was reimbursed).  It is depreciable as a land improvement, probably over 15 years.  But he has to have an operation to accommodate the depreciation.  In order to deduct he must operate the farm on Sch F, or rent on Form 4835, or otherwise have a for-profit operation involving the property.

I have a few clients who spend a buncha $$ on their place and want to create deductions because they tell me they are "going to" have cattle or something soon.  Some of these guys never begin an operation, and I believe they had no intention when the money was spent.  They were just trying to get Uncle Sam to subsidize their expenditure.  Unless I see the evidence, I tell them I will begin depreciating when they begin utilizing the land.

 

[RitaB]

14 hours ago, TAXMAN said:

TP owns about 42 acres. No farming or business run on property. TP received ok to construct fences along drainage ditches and water runoff ditches. TP in the future wants to graze cows on property. TP spent 37k out of pocket to erect fences. Applied for and received grant money to reimburse. Problem is Depart of Agriculture issued a 1099 for the amount. How would you show this on return? BTY IRS transcript does show this 1099.

Line 21.  The Department of Agriculture (we) gave him $37,000 in "other income".  Just like winning a prize at the county fair only more like winning 37,000 prizes.  Also like having $37,000 in credit card debt cancelled.

[Richcpaman]

No Biz or Farm activity?  No rental to others to graze their cattle?  (Is he lying about that income?)  Why build fences on property that has no animals on it?

Then you get reimbursed by the DofA for building these fences  Cool.  The government does not reimburse me when I put up fences, so why does it reimburse him?  The quick answer is he filed the application and made statements to the DofA that got him approved for the money.  Get a copy of the grant application. 

Then your client lied to you about receiving the money.  "He Forgot" that is why it is on the Transcript, and I presume you are dealing with a CP-2000 issue.

I like Edsel's answer above.  When he starts a farm, Biz or Rental, then he can depreciate his basis.  Until then, he has to pay tax on the grant. 

He can't use it to reduce his basis in the property, because he isn't using the property for Farm, Biz or Rental, and it wasn't an easement, he didn't give anything up.  He got something.

Rich 

 

[RitaB]

12 minutes ago, Richcpaman said:

I like Edsel's answer above.  When he starts a farm, Biz or Rental, then he can depreciate his basis.  Until then, he has to pay tax on the grant. 

I agree.  His basis is $37,000 after he pays the tax on the grant money.  Agricultural fences are normally depreciated over seven years in farm businesses.  And he does not have a farm business until he has a farm business.  If you find out he already does have a business, the $37,000 belongs on the appropriate schedule or form:  Schedule E, Schedule F, Form 4835, etc.

[TAXMAN]

Will check this out futher. Thanks all.