Instructions For Schedule F - Profit Or Loss From Farming Form 2006 (Page 4 of 7) in pdf

If you were repaid for any part of an

year your election is in effect. Unless you

tion, rent or lease payments, or your actual

expense, you must subtract the amount you

obtain IRS consent, you must make this

operating expenses.

were repaid from the deduction.

election for the first tax year in which you

If you claim any car or truck expenses

engage in a farming business involving the

(actual or the standard mileage rate), you

If you pro-

Capitalizing costs of property.

production of property subject to the capi-

must provide the information requested on

duced real or tangible personal property or

talization rules. You cannot revoke this

Form 4562, Part V. Be sure to attach Form

acquired property for resale, certain ex-

election without IRS consent.

4562 to your return.

penses must be included in inventory costs

or capitalized. These expenses include the

For details, see Pub. 225.

For details, see Pub. 463.

direct costs of the property and the share of

Generally, if you

Prepaid farm supplies.

any indirect costs allocable to that property.

use the cash method of accounting and your

However, these rules generally do not ap-

Line 14

prepaid farm supplies are more than 50% of

ply to expenses of:

your other deductible farm expenses, your

1. Producing any plant that has a

Deductible soil and water conservation ex-

deduction for those supplies may be lim-

preproductive period of 2 years or less,

penses generally are those that are paid to

ited. Prepaid farm supplies include ex-

conserve soil and water or to prevent ero-

2. Raising animals, or

penses for feed, seed, fertilizer, and similar

sion of land used for farming. These ex-

farm supplies not used or consumed during

3. Replanting certain crops if they were

penses include (but are not limited to) the

the year. They also include the cost of poul-

lost or damaged by reason of freezing tem-

cost of leveling, grading and terracing, con-

try that would be allowable as a deduction

peratures, disease, drought, pests, or casu-

tour furrowing, the construction, control,

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

alty.

and protection of diversion channels, drain-

ize the cost of poultry bought for use in

age ditches, earthen dams, watercourses,

your farming business and deduct it ratably

Exceptions (1) and (2) do not

outlets and ponds, the eradication of brush,

over the lesser of 12 months or the useful

apply to tax shelters, farming

and the planting of windbreaks.

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

syndicates, partnerships, or cor-

of poultry bought for resale in the year you

These expenses can be deducted only if

porations required to use the ac-

sell or otherwise dispose of it.

they are consistent with a conservation plan

crual method of accounting under section

approved by the Natural Resources Conser-

447 or 448(a)(3).

If the limit applies, you can deduct pre-

vation Service of the Department of Agri-

If you capitalize your expenses, do not

paid farm supplies that do not exceed 50%

culture for the area in which your land is

reduce your deductions on lines 12 through

of your other deductible farm expenses in

located. If no plan exists, the expenses must

34e by the capitalized expenses. Instead,

the year of payment. You can deduct the

be consistent with a plan of a comparable

enter the total amount capitalized in paren-

excess only in the year you use or consume

state agency. You cannot deduct the ex-

theses on line 34f. See Preproductive pe-

the supplies (other than poultry, which is

penses if they were paid or incurred for

riod expenses on page F-6 for details.

deductible as explained above). For details

land used in farming in a foreign country.

and exceptions to these rules, see Pub. 225.

But you may be able to currently deduct

Do not deduct expenses you paid or in-

rather than capitalize the expenses of pro-

curred to drain or fill wetlands, to prepare

ducing a plant with a preproductive period

land for center pivot irrigation systems, or

Line 12

of more than 2 years. See Election to de-

to clear land.

duct certain preproductive period expenses

You can deduct the actual expenses of run-

below.

Your deduction cannot exceed 25% of

ning your car or truck or take the standard

your gross income from farming (exclud-

Election to deduct certain preproductive

mileage rate. You must use actual expenses

ing certain gains from selling assets such as

period expenses.

If the preproductive pe-

if you used your vehicle for hire or you

farm machinery and land). If your conser-

riod of any plant you produce is more than

used five or more vehicles simultaneously

vation expenses are more than the limit, the

2 years, you can elect to currently deduct

in your farming business (such as in fleet

excess can be carried forward and deducted

the expenses rather than capitalize them.

operations). You cannot use actual ex-

in later tax years. However, the amount

But you cannot make this election for the

penses for a leased vehicle if you previ-

deductible for any 1 year cannot exceed the

costs of planting or growing citrus or al-

ously used the standard mileage rate for

25% gross income limit for that year.

mond groves that are incurred before the

that vehicle.

end of the 4th tax year beginning with the

For details, see Pub. 225.

You can take the standard mileage rate

tax year you planted them in their perma-

for 2006 only if you:

nent grove. You are treated as having made

•

the election by deducting the preproductive

Owned the vehicle and used the stan-

Line 15

period expenses in the first tax year for

dard mileage rate for the first year you

which you can make this election.

placed the vehicle in service, or

Enter amounts paid for custom hire or ma-

•

chine work (the machine operator fur-

Leased the vehicle and are using the

In the case of a partnership or S

nished the equipment).

standard mileage rate for the entire lease

corporation, the election must

period (except the period, if any, before

Do not include amounts paid for rental

be made by the partner, share-

1998).

or lease of equipment that you operated

holder, or member. This elec-

yourself. Instead, report those amounts on

tion cannot be made by tax shelters,

If you deduct actual expenses:

line 26a.

farming syndicates, partnerships, or corpo-

•

Include on line 12 the business portion

rations required to use the accrual method

of expenses for gasoline, oil, repairs, insur-

of accounting under section 447 or

ance, tires, license plates, etc., and

448(a)(3).

Line 16

•

Show depreciation on line 16 and rent

If you make the election to deduct

or lease payments on line 26a.

You can deduct depreciation of buildings,

preproductive expenses for plants, any gain

improvements, cars and trucks, machinery,

you realize when disposing of the plants is

If you take the standard mileage rate,

and other farm equipment of a permanent

ordinary income up to the amount of the

multiply the number of business miles

nature.

preproductive expenses you deducted.

driven by 44.5 cents. Add to this amount

Also, the alternative depreciation rules ap-

your parking fees and tolls, and enter the

Do not deduct depreciation on your

ply to property placed in service in any tax

total on line 12. Do not deduct deprecia-

home, furniture or other personal items,

F-4

Instructions For Schedule F - Profit Or Loss From Farming Form 2006 Page 4

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