Tax Advantages continued...
If you are a passive investor, you are still allowed the tax benefits discussed below. The
issue is whether you will be able to take the losses on a current basis. All the losses can
be taken against profits or upon final disposition of the herd. The discussion from here
forward presumes you are a cash basis taxpayer and you keep good records. Accrual
basis taxpayers would also be allowed the same tax treatment, but their timing might be
different.
First, the following items must be included in both a passive owner's and a full time
rancher's gross income calculation:
The following expenses may be deducted from this income. Please note, if you are
agisting your animals, not all of these deductions may apply on a current basis:
Please note: For hands-on ranchers, personal and business expenses must be allocated
between ranch use and personal use; only the ranch use portion can be expensed for
such expenses as a telephone, utilities, property taxes, accounting, etc.
Once active alpaca ranchers have determined their net income or loss, it is included on
their tax return as an addition to or a deduction from their ordinary income. Losses can
be carried back for three years and forward for 15 years. To deduct any loss, you must
be at risk for an amount equal to or exceeding the losses claimed. The "at risk" rules
mean that the deductible loss from an activity is limited to the amount you have at risk in
the activity. You are generally at risk for:
The passive owner's losses that are in excess of current income can be carried forward
and taken against future income. In other words, the passive owner does not lose the
deductibility of expenses, but the timing of the losses may be different.
If you are a passive investor, you are still allowed the tax benefits discussed below. The
issue is whether you will be able to take the losses on a current basis. All the losses can
be taken against profits or upon final disposition of the herd. The discussion from here
forward presumes you are a cash basis taxpayer and you keep good records. Accrual
basis taxpayers would also be allowed the same tax treatment, but their timing might be
different.
First, the following items must be included in both a passive owner's and a full time
rancher's gross income calculation:
- Income from the sale of livestock
- Income from sale of crops, i.e. fiber
- Rents
- Agriculture program payments
- Income from cooperatives
- Cancellation of debts
- Income from other sources, such as services
- Breeding fees
The following expenses may be deducted from this income. Please note, if you are
agisting your animals, not all of these deductions may apply on a current basis:
- Vehicle mileage for all ranch business (IRS publishes current rate)
- Fees for the preparation of your income tax return ranch schedule
- Livestock feed
- Labor hired to run and maintain your ranch
- Ranch repairs and maintenance
- Interest
- Breeding fees
- Fertilizer
- Taxes and insurance
- Rent and lease costs
- Depreciation on animals used for breeding
- Depreciation of real property improvements such as barns and equipment
- Ranch or investment-related travel expenses
- Educational expenses, which improve your ranching or investment expertise
- Advertising
- Attorney fees
- Ranch fuel and oil
- Ranch publications
- AOBA (breed association) dues
- Miscellaneous chemicals, i.e., weed killer
- Veterinarian care
- Small tools
- Agistment fees
Please note: For hands-on ranchers, personal and business expenses must be allocated
between ranch use and personal use; only the ranch use portion can be expensed for
such expenses as a telephone, utilities, property taxes, accounting, etc.
Once active alpaca ranchers have determined their net income or loss, it is included on
their tax return as an addition to or a deduction from their ordinary income. Losses can
be carried back for three years and forward for 15 years. To deduct any loss, you must
be at risk for an amount equal to or exceeding the losses claimed. The "at risk" rules
mean that the deductible loss from an activity is limited to the amount you have at risk in
the activity. You are generally at risk for:
- The amount of money you contribute to an activity
- The amount you borrow for use in the activity
The passive owner's losses that are in excess of current income can be carried forward
and taken against future income. In other words, the passive owner does not lose the
deductibility of expenses, but the timing of the losses may be different.