I'm not real experienced with Farms. I have an elderly lady that doesn't have great records (husband died that really handled it all). It appears that they have been deducting cost of feed, fertilizer, etc. every year. The cows that she sold were raised. So I'm simply thinking those cows have a basis of 0. I read somewhere about capitalizing costs, but I'm sure her records are not that thorough, and I'm thinking small operators don't have to do that????? No one has surely been doing that in previous years. Am I correct about the 0 basis?
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The basis in a raised cow is generally -0-. However, are you using cow in the generic sense or the specific sense? In other words, a cow has had a baby. A heifer has not. A steer is a castrated male and a bull is a breeder. You need to know exactly what was sold.
So, you need to know if the cattle were breeders. Look at the instructions to form Form 4797, if breeders (in other words a raised specific cow). The sale of a cow (as defined above) would be the sale of raised breeding stock if raised or the sale of depreciable breeding stock if purchased. You will also need to know how long they have had the cow to report properly on Form 4797.
The specific term to use is "cattle" until you know how the cattle were treated by the farmer (calf, heifer, cow, steer, bull, yearling)
If breeders, then Form 4797 is likely to come in to play.
Oftentimes they will keep the breeders until older and sell the calves. The calves sold are generally raised and reported on Schedule F. The reason is the calves are generally not old enough to have become breeders. -
I know they were not bulls. If they were in fact breeders that were sold when I ask the taxpayer, how is the value determined?Comment
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If they were breeders that were raised, then you need to know how old they are, or at least if they were held greater than or less than 24 months. The basis will be -0- if they were raised (see below for definition of raised). See the Form 4797 instructions - There is a table on the first page that details how to report the sale for raised breeders.
Raised for this discussion means the animal was born to another animal that the taxpayer owns.
If they purchased the cattle as breeders, they should be depreciated and sale reported on Form 4797. If they purchased the cattle to fatten and later sell, then the sale is reported on Schedule F with cost (they should be able to tell you) deducted in the income section of Schedule F.
Just make certain they were breeders before you report them on Form 4797.Comment
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When did the husband die? And was there a step-up in basis for the breeding cows and breeding bulls? Both those purchsaed and depreciated and those raised.Jiggers, EAComment
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Jiggers, good point. I missed that detail in the original post.Originally posted by Jiggers View PostComment
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A general answer
A simple answer is one which is usually the case. If the livestock was purchased, they have a basis of their purchase price. If the livestock was born on the farm and raised on the farm basis is zero.Originally posted by Super Mom View Post
As usual, there are exceptions to everything, but if you're looking for a simple answer, this is it. Very few farmers (unless they are larger) are required to capitalize production cost.Comment
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I agree that a simple answer is best, but a simple answer does not resolve the reporting of cattle sold on a ranch. The key question here is where the sale needs to be reported. It is either reported on the Schedule F or the Form 4797. Knowing what was sold, the purpose of the animal on the farm, how it was acquired, and how long it has been held is the only way to know where to report the sale.Originally posted by Nashville View PostComment
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Thanks Everyone!
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Is prior year return available?
If she has it, I would want to see last years return. That might give you some idea of how things were handled in the past (not that that would mean they were handled correctly).Comment
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I am thinking along Jiggers line that even a raised STOCK(breeder) cow will have a basis due to death of the farmer even if both ran the farm. I saw this on a Estate return where the attorney was protecting the spousal benefits of the deceased even though no Estate was required. Just my imput.Comment
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This is a great benefit, especially in Texas which is a community property state. A full step-up in basis for the surviving spouse, either the wife or the husband.Originally posted by TAX4US View Post
The problem is getting the surviving spouse to go to an attorney to file an inventory of the estate. They just don't want to pay the attorney a fee, though it will save them a considerable amount of taxes in the future.Jiggers, EAComment
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Jiggers, are you saying that you have to file an inventory with an attorney to get this benefit? You cannot compile at list yourself with FMV? Most farmers know pretty well what the value of their livestock is.Originally posted by Jiggers View PostComment
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To be on the safe side if the estate is fairly large but under the federal filing requirements for an estate return.Originally posted by Gretel View Post
Especially if there is land involved. I would want to have something in writing when the land is sold several years later and the heir/heirs have no clue. An inventory of the estate really helps.
No, it is not necessary to use an attorney. But based on the questions and the looks I get, they have no clue.Jiggers, EAComment
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