Livestock sale due to drought - POSTPONE GAIN - 1245 depreciation recapture question

[numberkruncher]

Sorry to be back, but I'm still in the cow lot.

Am I bashing my forehead against a brick wall because the farmer cannot postpone the depreciation recapture??

I was able to properly report all of the 1245 recapture on the breeding herd and everything is on the right section and line on the 4797.

However, when I try to postpone taxes on the gain caused by the recapture, my software has NO option to override
either the 4797 or the 4684. I called the company and asked how to make an entry in Part II of the 4797, but Tech support suggested I use the Casualty Loss (4684).
However, there's no way to make an entry on line 33 of the 4684 either...and believe me...I've tried to find a way around the software!!

So, now I'm beginning to doubt my understanding of the issue. My client will report the 1245 recapture, but I'd very much like to postpone taxes on the sale of his
breeding herd until a later year. The herd was generally 5 years old, so 70% of the sale of the herd is recapture.

I appreciate any advice or opinions.
NK

[Jiggers]

I make a manual entry on the 4797, Part 2:

Drought Deferral (Description), no sales amount or -0- if your software requires something, and a cost basis of the amount of the deferral.

The 1245 recapture on Part 3 carries to Part 2, the drought deferral will be deducted from that amount.

[Nashville]

Knumbercruncher

I think Jiggers has bailed you out of the software problem by creating a "phantom" entry.

But something you may wish to think about. Remember the postponement of the gain is an option and not a necessity.
The circumstances tell you the farmer obviously had a bad year on account of the drought, and sold off some (or all) of his herd to avoid the high price of feeding them through the winter.

My point is he is shoving income from a bad year to possibly a good year. Not only that, but this income on a 4797 will not bear any self-employment tax. Given the numbers, is this something you really want to do?

I do probably four dozen farm returns in a years' time, and for the most part I would not do this. However, if he sold his ENTIRE herd the numbers may be so large that you are moving from a high-income year to a low-income year and all bets are off. Not only that, there may be no guarantee that the drought will go away in the year to come either.

Just sumphin' to think about...

[numberkruncher]

Jiggers,
Victory! I took your advice and made the bogus entry on the 4797 screen and
it worked perfectly. Thank you very much.

Nashville,
I appreciate your point of view. In fact, I'm meeting with my clients on Friday to evaluate the options available.
They are very young farmers and I'll be educating as well as advising. I'll include your
perspective.

Thank you again. Have a great day!
NK

[Jiggers]

Nashville, I agree with you on evaluating every situation.

On 2011 returns, in our great drought area, I had several clients that dumped their "raised" old cows. These are capital gains tax rate cows!

They were still in the 15% tax bracket and we decided that since there was no tax due on the old cows, why defer the gain and have to replace them later.

Some sold old "purchased" cows that had the depreciation recapture. But the tax rate was only 15%. Reviewing the situation, the tax paid was better than having to spend a lot of money in the future.

In some instances, by deferring the gain, and having to replace in the future, you also have to look at the lost deductions for depreciation that reduce SE tax.

Not just a simple answer that can be applied to all farmers.