ANOTHER FARM QUESTION

[Marie]

FARMER SELLS PURCHASED BREEDING STOCK.  ALL GAIN IS ORDINARY GAIN FROM 4797.  ALSO SOLD EQUIPMENT, RECAPTURING THE DEPRECIATION, SO ORDINARY GAIN. DO THESE AMOUNTS ADD INTO THE 199A COMPUTATION?

[DANRVAN]

I think it has been clear from the get go that congress intended to include 1231 gains in section 199-A computation.  The proposed regs contained some language that  was intended to distinguish between 1231 and 1245 gains.  However, some found that reference confusing so it was dropped in the final regs.  As I read it, section 199-A includes all items of gain or loss attributed to the taxpayer's business except for capital gains or losses.  Capital gains are not included since they receive tax preference outside of 199-A.

 

The following is from page 56 of the recent IRS release:

To avoid any unintended inferences, the final regulations remove the specific reference to section 1231 and provide that any item of short-term capital gain, shortterm capital loss, long-term capital gain, or long-term capital loss, including any item treated as one of such items under any other provision of the Code, is not taken into account as a qualified item of income, gain, deduction, or loss. To the extent an item is not treated as an item of capital gain or capital loss under any other provision of the Code, it is taken into account as a qualified item of income, gain, deduction, or loss unless otherwise excluded by section 199A or these regulations.

[Marie]

OK, WHAT I THOUGHT, BUT IT'S A CONFUSING THING.  THANKS