TP has a farm and also works a job in town. over 50% of gross is from farming. has several 1099c from credit cards. if he can prove thru receipts that credit cards were used to purchase farm equipment, pay farm bills, etc will that qualify for exclusion. what about the interest that has accumulated? would that be qualified farm debt also? what are tax attributes? if I read right, he has none, no losses, nol, credits. he has no basis in any farm buildings or equipment-all depreciated out.
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This isn't based on much, but I would say yes, it qualifies and so does the interest. The debt is obviously from the farm (and it seems like he fits the other qualifying requirements), and any other cancelled debt or exclusion for cancelled debt (such as insolvency) includes interest, so I don't see why farm interest would be any different.
The tricky thing is if the credit cards have a mixture of personal and business expenses, and some payments were made. It could be tricky figuring out how the payments should be applies (personal and/or business).
If all of his farm assets have no basis, then it would seem like you don't need to reduce any tax attributes. -
Possible Problem with Interest
If the 1099-C balance includes interest accrued but not paid, there may be a problem including it in farm debt.
I think there is a requirement to actually PAY interest in order to deduct it, even for an accrual-based taxpayer. Of course, the rules for excluding farm debt are different than the rules for deducting, but if interest has been accrued and unpaid then it cannot be considered as basis in the loan. Maybe the entire loan can qualify for exclusion, but I'm skeptical about the interest.Comment
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