Federal Tax

Farm and Ranch Expenses and Credits (Portfolio 607)

  • This Portfolio describes, analyzes, and illustrates the federal income tax treatment of expenditures by farmers and ranchers, including deductions, capital expenditures, and credits.


The Bloomberg Tax Portfolio, Farm and Ranch Expenses and Credits, No. 607, analyzes the federal income tax treatment of diverse expenditures by taxpayers engaged in farming or ranching as a trade or business or for the production of income.

Part I consists of introductory material and provides cross-references to related topics not covered in this Portfolio. Part II discusses the requirements for deduction as business expenses and production-of-income expenses, the limitation of deductions when an activity is not engaged in for profit, and the rules for distinguishing activities engaged in for profit from activities not engaged in for profit as applied in a farm and ranch setting. Part II also discusses specific business or production-of-income expenses that are commonly deductible in the farm or ranch context. Part III provides more general rules relative to deductions for interest, taxes, losses, depreciation, depletion, amortization, contributions to pension or profit-sharing plans, and domestic production activities. Part IV discusses limitations on the amount deductible, such as the disallowance of personal expenses, limitations on prepaid expenses, the at risk limitation, the limitation of passive activity losses, and the limitation on farming losses upon receipt of applicable subsidies.

Part V addresses the treatment of farmers’ and ranchers’ capital expenditures, including the application of the uniform capitalization rules. Part V also addresses various elections by which taxpayers engaged in farming may elect to deduct certain expenditures rather than capitalize them.

Part VI describes the requirements for obtaining credits or refunds that farmers or ranchers may claim. Part VII covers the treatment of net operating losses and special rules for farmers that allow longer carryback periods. The alternative minimum tax impact of the deduction of farm and ranch expenses is discussed in Part VIII. Part IX refers to returns and compliance matters of particular interest to farmers and ranchers, including the substantiation of farm deductions.

Table of Contents

I. Introduction
II. Ordinary and Necessary Business Expenses and Production-of-Income Expenses
III. Other Expenses Commonly Incurred in Farming and Ranching
IV. Limitations on Deductions
V. Capital Expenditures and Related Provisions
VI. Farm and Ranch Tax Credit
VII. Net Operating Loss and Alternative Minimum Tax Treatment
VIII. Tax Returns and Compliance

Carla Neeley Freitag
Tax Research and Writing
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