Cattle Ranch - any suggestions appreciated

[BulldogTom]

So we were at a dance last night and I got a new client....yeah...well they were asking me some questions and I was giving free advice on the sale of some land they have planned this year.   I do it all the time.   And then they tell me they want me to do their return because they are older and TT is getting harder to use.   OK, more than happy to do so.

Then they tell me they have a small cattle ranch.   I have never done a cattle ranch and I would sure appreciate any suggestions you might have to point me in the right direction.   I am embarrassed to say that I only know it goes on the Schedule F and I think the animals are inventory, but I have no idea how to value them.

Thanks in advance.

Tom
Longview, TX

[Lee B]

The Center for Agricultural Law and Taxation is a good resource:   https://www.calt.iastate.edu/

[Lion EA]

https://www.irs.gov/pub/irs-pdf/p225.pdf

[BTS]

Im right smack in the middle of farm country.  And I suspect others here are too.  Any questions just "Holler"

[BulldogTom]

5 minutes ago, BTS said:

Im right smack in the middle of farm country.  And I suspect others here are too.  Any questions just "Holler"

Thank you.   I will definitely do so as soon as I see their documents

Tom
Longview, TX

[BTS]

2 minutes ago, BulldogTom said:

Thank you.   I will definitely do so as soon as I see their documents

Tom
Longview, TX

If they have done their own in the past with TT, then make sure they get you a copy of their depreciation report.  Ughhh !!  Seems when we pick up new farm accounts its always the ones with hundreds of assets to enter.  That first year is always a pain. 

[DANRVAN]

20 hours ago, BulldogTom said:

I think the animals are inventory

That depends on if they are held for market or breeding.   Raised livestock do not have any basis whether held for breeding or market.

LIvestock purchased for breeding are depreciated.

Livestock purchased for resale are inventory.  

Sales of raised breeding stock go on part one of 4797 and are capital gains.

Sale of purchased breeding stock go on part three of 4797 and subject to depr recap.

20 hours ago, BulldogTom said:

TT is getting harder to use. 

 

20 hours ago, BulldogTom said:

small cattle ranch

Those two statements lead to the possibility of a hobby versus business.   Proceed with caution!

[BulldogTom]

5 hours ago, DANRVAN said:

That depends on if they are held for market or breeding.   Raised livestock do not have any basis whether held for breeding or market.

LIvestock purchased for breeding are depreciated.

Livestock purchased for resale are inventory.  

Sales of raised breeding stock go on part one of 4797 and are capital gains.

Sale of purchased breeding stock go on part three of 4797 and subject to depr recap.

 

Those two statements lead to the possibility of a hobby versus business.   Proceed with caution!

Thanks @DANRVAN  That is helpful.

If I understand them correctly, they purchase and raise for sale.   He said something about how he stopped working with heifers because it was too much work.   What I am most interested in is how you value for inventory.   I have been reading about the farm price method and the unit price livestock method.   I need to get a handle on those methods and how to value using either.   Wife mentioned something about how the prices being high made her have to increase the inventory, so I need to figure that out.  

Family has been in the cattle business for generations, trimmed their herd a couple years ago like many other ranchers when feed cost went through the roof.   I am not concerned with hobby, but thanks for pointing that out.

I am reading, but I don't feel like I am getting smarter.  

Tom
Longview, TX

[Corduroy Frog]

Wrap your arms around a list of depreciable assets.  Farm equipment is expensive and depreciable.  Also breeding cattle are depreciable if they were paid for.  A bull is nearly always paid for because a calf raised to be a bull will have cross-breeding problems and can sire out very sickly calves.

Farmers have some advantages with respect to treatment as a "hobby" that other businesses don't have.  To begin with, IRS will be deliriously delighted when farmland is ultimately sold. as the gains can easily eclipse the total of all previous losses.  Also a landowner must do something productive on his land or else it will grow up in ruins and barns will dilapidate.  (Timer would be an exception).  And there is also the profit motive.

A "farm" with 8 acres and one cow is a hobby.

Make sure all income is reported.  Payments of $7000 for feed and only $1500 in calves sold is a warning sign, unless the calves are being held over the winter for sale in the spring.  This practice is not very common since it is horribly uneconomic to keep livestock in winter months.

I do around 25 farms in Tennessee every year.  Most of them do have losses that i feel are legitimate, and some have profit.  Some of them have small losses and occasional profits.  Many of them move from losses to profits when their expensive equipment becomes depreciated.

[BulldogTom]

@Corduroy Frog Thank you.   I think it is 35 acres and 50-70 head right now.  

Tom
Longview, TX
 

[Catherine]

On 2/17/2025 at 7:58 PM, BulldogTom said:

I am reading, but I don't feel like I am getting smarter.  

At least you are confused at a Higher Level, and about More Important Items!

[Catherine]

On 2/18/2025 at 1:13 AM, Corduroy Frog said:

Most of them do have losses that i feel are legitimate, and some have profit.  Some of them have small losses and occasional profits.  Many of them move from losses to profits when their expensive equipment becomes depreciated.

Reminds me of the old tale of the farmer who won $1M in the lottery. Asked what he was going to do now, his reply was "Keep farming until it's all gone."

God bless them all, because without them we would not eat.

[RitaB]

20 hours ago, Catherine said:

Reminds me of the old tale of the farmer who won $1M in the lottery. Asked what he was going to do now, his reply was "Keep farming until it's all gone."

God bless them all, because without them we would not eat.

One of mine that retired said, "You better quit when the cows can run faster than you can."

[Lion EA]

University of Illinois Tax School has a farmers' tax seminar each year and might sell the text separately to you. Texas might have similar learning opportunities. State Universities often have "Extensions" that provide education and services to farmers and farm tax preparers (and to anyone really, so if any landowner needs help with what's wrong with their grass/soil or what plants would grow in their area or what's going on with their well water or...).

[BulldogTom]

1 hour ago, Lion EA said:

University of Illinois Tax School has a farmers' tax seminar each year and might sell the text separately to you. Texas might have similar learning opportunities. State Universities often have "Extensions" that provide education and services to farmers and farm tax preparers (and to anyone really, so if any landowner needs help with what's wrong with their grass/soil or what plants would grow in their area or what's going on with their well water or...).

Texas AM has some seminars, but none right now.   I think I will be attending when they schedule again this Summer/Fall.

Tom
Longview, TX

[Corduroy Frog]

The Illinois Tax Seminar was originally for farmers, and was adapted by all the "land-grant" schools in every state.  For Alabama, this means Auburn U, and I have been going down to Birmingham three years to attend this thing.  For Texas, this probably means A&M is sponsoring the seminar.

The textbook is pretty good, but doesn't have much about farming any more.  If you stand to read IRS material, Pub 225 is pretty good and is strictly for farmers.