Expense paid in 15 refunded in 16

[kathyc2]

Cash basis Schedule F farmer bought and paid for 15K of seeds in Dec of 2015. In Jan he was diagnosed with cancer, and seeds were returned for full refund as he will be renting out the farm in 16 rather than farming it.

Must I claim the expense in 15 and then the refund as income in 16, or do I have the option of just not claiming expense this year and then no taxable refund in 16?

[Roland Slugg]

There are several special rules for farmers, including the "crop method," and inventory methods, plus, of course, the general rule which says that "ordinarily" a farmer's expenses are deductible in the year in which they are paid. The word ordinarily is emphasized here because this situation is NOT ordinary.

If this were my client, I would not deduct the cost of the seeds in 2015 nor, of course, include the recovery of their cost as income in 2015.