Farm Expense Property Details

Do not deduct the following:

• Personal or living expenses (such as taxes, insurance, or repairs on your home) that do not produce farm income.

• Expenses of raising anything you or your family used.

• The value of animals you raised that died.

• Inventory losses.

• Personal losses.

If you were repaid for any part of an expense, you must subtract the amount you were repaid from the deduction.

Capitalizing Costs of Property

If you produced real or tangible personal property or acquired property for resale, certain expenses must be included in inventory costs or capitalized. These expenses include the direct costs of the property and the share of any indirect costs allocable to that property. However, these rules generally do not apply to expenses of:

• Producing any plant that has a reproductive period of 2 years or less,

• Raising animals, or

• Replanting certain crops if they were lost or damaged by reason of freezing temperatures, disease, drought, pests, or casualty.

Note: Exceptions 1 and 2 above do not apply to tax shelters, farming syndicates, or partnerships required to use the accrual method of accounting under section 447 or 448.

But you may be able to currently deduct rather than capitalize the expenses of producing a plant with a reproductive period of more than 2 years.

For more information see IRS Instructions for Schedule F.