Sch F

[Super Mom]

Can someone please explain to me the negative entry on line 32 for 263A costs? Specifically, if I do that then depreciate it's a wash. HELP!

[Super Mom]

OK, if I can't get this, I will have to tell client I can't help him on this. Really don't want to do that, but will have to if I can't find this out soon. Research, upon research has not helped me to understand this. The sample F's I've seen do not include 263A so that was no help. Does anyone out there have experience with F and can help me understand, I plan to take a course about this later in the year, but right now I can't do this without understanding how this goes on the form. Thanks everyone!

[RitaB]

My two cents, and you get what you pay for

I have done a lot of Sch F's, have no idea what you're dealing with here.

Here are some links that may help. "Loop Hole Lewy" has a certain ring to it, think I'd start there. Sorry, all I got:

http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._263._Capital_expenditures

http://loopholelewy.com/loopholelewy/01-tax-basics-for-startups/accounting-methods-03-unicap.htm

http://www.cpa-connecticut.com/unicap.html

[Super Mom]

Thanks for the quick response Rita, the only reason I got into all this is that if the 263A is skipped and they expense something like preproductive plants that take 5 years to produce, they cannot use bonus depreciation---the election to forgo 263A subjects them to ADS. The directions for F says to enter the 263A costs as negative number on the F, I don't understand that unless the expenses are also entered. Have you done any F's with that entry?

[RitaB]

No, Ma'am

Thanks for the quick response Rita, the only reason I got into all this is that if the 263A is skipped and they expense something like preproductive plants that take 5 years to produce, they cannot use bonus depreciation---the election to forgo 263A subjects them to ADS. The directions for F says to enter the 263A costs as negative number on the F, I don't understand that unless the expenses are also entered. Have you done any F's with that entry?

No, Ma'am I have not.

Here's the "263A" search results from another forum, might help:

http://www.taxalmanac.org/index.php/Special:Search?search=263+A&create=Search+Forums&ns110=1&searchx=Search

[Golden Rocket]

Negative Entries

I have used negative entries when having to use §263A.

What you do: List the total of all expenses on lines 10-31 of the Sch F, even the expenses that you're having to capitalize. Then deduct the amount you're having to capitalize as a negative entry on line 32a. For line 32a, enter "Capitalized".

Example, the total of all expenses, such as land taxes, fertilizer, feed, veterinary, etc. is some $14,000. Included in the $14,000 are some of the costs you are going to have to consider preproductive (i.e. capitalize). Lines 10-31 would thus total $14,000. However, because you are subject to §263A, let's suppose you have to capitalize $5,000 into preproductive costs. Line 32a would show a negative ($5000). For the description of this line item I would enter "capitalize", or you might enter "preproductive costs." The two names are synonymous for the §263A situation.

[Super Mom]

Thank you SO much, since he's a farmer and does't really have inventory, those costs are depreciated right? can I use bonus this year for that?

[dan doshan]

Super Mom... your post has me checking various sources I can find. So far I would have no clue as to how to handle a farmer where apparently you will be using an accrual form of accounting and having to capitalize some expenses. Find all sorts of references too such but nothing as far as just how to handle. Unless a farmer had to use such a system for some reason I would stay as far away from it as I could. If he did have to use such a system I would say thank you for your company but good luck at finding a preparer familiar with dealing with such.

[Golden Rocket]

Could be inventoried

SuperMom, thanks for the PM, but I'm going to steer away from depreciable methods since the capitalization might be for retained calves (inventory, no depreciation) or for a herd (capital assets with depreciation).

If it helps any, for a herd I almost always choose 5 yrs at 200%Declining Balance, unless the farmer is in danger of AMT (in which case I would use 5 yrs at 150% DB). Capitalized costs attaching to calves for sale in the following year would not be depreciated at all, but would be deductible when the calves were sold, similarly to inventoried cost. Don't know whether a herd is eligible for bonus depreciation or not, but don't know that it is prevented either.

It's hard to give you a straight answer without launching even more questions.

[Super Mom]

I see, thank you so much, I've just read that depreciation begins at that time the plants become productive. I'm just going to tell him to go elsewhere with this for someone with more experience in these matters. Thanks for all of your help!!

[okie1tax]

Farm depreciation method

My understanding is that farms are required to use 150% declining balance unless real property.

[Super Mom]

Thanks! That was my understanding too, just wasn't sure when to begin depreciation. I saw clearly from a second reading of 225 that depreciation starts when the plants produce. Sometimes it's good to re-read when your not so tired and frustrated!