Instructions For Schedule F - Profit Or Loss From Farming

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Bartering income.

tax year for which you can make this elec-

Personal or living expenses (such as

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tion and by applying the special rules, dis-

Income from cancellation of debt.

taxes, insurance, or repairs on your home)

cussed below.

Generally, if a debt is canceled or forgiven,

that do not produce farm income.

you must include the canceled amount in

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Expenses of raising anything you or

income. If a federal agency, financial insti-

your family used.

tution, or credit union canceled or forgave a

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The value of animals you raised that

In the case of a partnership or S

debt you owed of $600 or more, it should

died.

corporation, the election must

send you a Form 1099-C, or similar state-

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be made by the partner, share-

ment, by February 2, 2009, showing the

Inventory losses.

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holder, or member. This elec-

amount of debt canceled in 2008. However,

Personal losses.

you may be able to exclude the canceled

tion cannot be made by tax shelters,

debt from income. See Pub. 4681 for de-

farming syndicates, partnerships, or corpo-

If you were repaid for any part of an

tails.

rations required to use the accrual method

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expense, you must subtract the amount you

of accounting under section 447 or

State gasoline or fuel tax refunds you

were repaid from the deduction.

received in 2008.

448(a)(3).

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The amount of credit for federal tax

paid on fuels, if you deducted the total cost

If you pro-

Capitalizing costs of property.

of the fuel on your 2007 Form 1040.

duced real or tangible personal property or

Unless you obtain IRS consent, you

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The amount of credit for alcohol and

acquired property for resale, certain ex-

must make this election for the first tax year

cellulosic biofuel fuels that was claimed on

penses must be included in inventory costs

in which you engage in a farming business

Form 6478.

or capitalized. These expenses include the

involving the production of property sub-

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The amount of credit for biodiesel and

direct costs of the property and the share of

ject to the capitalization rules. You cannot

renewable diesel fuels that was claimed on

any indirect costs allocable to that property.

revoke this election without IRS consent.

Form 8864.

However, these rules generally do not ap-

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Any recapture of excess depreciation

ply to expenses of:

Special rules. If you make the election

on any listed property, including any sec-

to deduct preproductive expenses for

1. Producing any plant that has a

tion 179 expense deduction, if the business

plants:

preproductive period of 2 years or less,

use percentage of that property decreased

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to 50% or less in 2008. Use Form 4797 to

2. Raising animals, or

Any gain you realize when disposing

figure the recapture. See the instructions

3. Replanting certain crops if they were

of the plants is ordinary income up to the

for Schedule C, line 13, on page C-5 for the

lost or damaged by reason of freezing tem-

amount of the preproductive expenses you

definition of listed property.

peratures, disease, drought, pests, or casu-

deducted, and

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The inclusion amount on leased listed

alty.

The alternative depreciation rules ap-

property (other than vehicles) when the

ply to property placed in service in any tax

business use percentage drops to 50% or

year your election is in effect.

less. See chapter 5 of Pub. 946 to figure the

amount.

Exceptions (1) and (2) do not

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For details, see Uniform Capitalization

Any recapture of the deduction for

apply to tax shelters, farming

Rules in chapter 6 of Pub. 225.

clean-fuel vehicles and clean-fuel vehicle

syndicates, partnerships, or cor-

refueling property used in your farming

porations required to use the ac-

business. For details on how to figure re-

crual method of accounting under section

Generally, if you

Prepaid farm supplies.

capture, see Regulations section 1.179A-1.

447 or 448(a)(3).

use the cash method of accounting and your

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The gain or loss on the sale of com-

prepaid farm supplies are more than 50% of

modity futures contracts if the contracts

your other deductible farm expenses, your

were made to protect you from price

deduction for those supplies may be lim-

changes. These are a form of business in-

If you capitalize your expenses, do not

ited. Prepaid farm supplies include ex-

surance and are considered hedges. If you

reduce your deductions on lines 12 through

penses for feed, seed, fertilizer, and similar

had a loss in a closed futures contract, en-

34e by the capitalized expenses. Instead,

farm supplies not used or consumed during

close the amount of the loss in parentheses.

enter the total amount capitalized in paren-

the year. They also include the cost of poul-

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Any income from breeding fees, or

theses on line 34f and enter “263A” in the

try that would be allowable as a deduction

fees from renting teams, machinery, or

space to the left of the total. See Preproduc-

in a later tax year if you were to (a) capital-

land.

tive period expenses on page F-7 for de-

ize the cost of poultry bought for use in

tails.

your farming business and deduct it ratably

over the lesser of 12 months or the useful

For property acquired and

But you may be able to currently deduct

life of the poultry, and (b) deduct the cost

hedging positions established,

of poultry bought for resale in the year you

rather than capitalize the expenses of pro-

you must clearly identify on

sell or otherwise dispose of it.

ducing a plant with a preproductive period

your books and records both the

of more than 2 years. See Election to de-

hedging transaction and the item(s) or ag-

gregate risk that is being hedged.

duct certain preproductive period expenses

If the limit applies, you can deduct pre-

next.

paid farm supplies that do not exceed 50%

of your other deductible farm expenses in

Purchase or sales contracts are not true

the year of payment. You can deduct the

Election to deduct certain preproductive

hedges if they offset losses that already oc-

excess only in the year you use or consume

If the preproductive pe-

period expenses.

curred. If you bought or sold commodity

the supplies (other than poultry, which is

riod of any plant you produce is more than

futures with the hope of making a profit due

deductible as explained above). For details

to favorable price changes, report the profit

2 years, you can elect to currently deduct

and exceptions to these rules, see chapter 4

or loss on Form 6781 instead of this line.

the expenses rather than capitalize them.

of Pub. 225.

But you cannot make this election for the

costs of planting or growing citrus or al-

Whether or not this 50% limit applies,

mond groves that are incurred before the

your expenses for livestock feed paid dur-

end of the fourth tax year beginning with

Part II. Farm

ing the year but consumed in the later year,

the tax year you planted them in their per-

may be subject to the rules explained later

manent grove. You are treated as having

Expenses

in the line 18 instructions.

made the election by deducting the

preproductive period expenses in the first

Do not deduct the following.

F-4

Instructions For Schedule F - Profit Or Loss From Farming - 2008 Page 4

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