Related party purchase

[Floridagirl]

Father has small farm with cattle fully depreciated. Son buys cattle. Can son depreciate the cattle also?

[TaxGuyBill]

Yes.

Son can depreciate them using the amount he paid for the cattle.
The Father will have a gain of the amount of the sale price to the Son.

[ATSMAN]

I would also caution them that the price paid for the cattle has to be reasonable, FMV etc. I have had related parties tell me that they sold a piece of machinery less than the scrap value!

[kathyc2]

I would also caution them that the price paid for the cattle has to be reasonable, FMV etc. I have had related parties tell me that they sold a piece of machinery less than the scrap value!

Since it won't result in a loss, where are you getting the info from that it needs to be FMV?

[ATSMAN]

The OP did not indicate gain or loss, unless I missed that.

[kathyc2]

The OP did not indicate gain or loss, unless I missed that.

Zero basis (fully depreciated), so no loss.

[Anarchrist]

Is it an arms length transaction? Why is the father selling and why is the son buying the cattle?

[kathyc2]

Is it an arms length transaction? Why is the father selling and why is the son buying the cattle?

Why do any of these questions matter? If there was a loss, which is not the case here, the father could not take the loss due to related party rules. If people know of regs that sales between related parties need to be at arms length, FMV, etc., please share.

[Lion]

Could part be a gift and part be a sale if not at FMV?

[Anarchrist]

Why do any of these questions matter?

substance over form, step transaction, business purpose doctrine
all sorts of ways they could be plotting

[Toobusy]

Kathyc, there is a reg prohibiting sales between related parties, similar to the reg pertaining to rental property. However, I can't quote it and do not have time to research it. But you can qoogle it.

I had a similar situation with a client a couple weeks ago with a house that she purchased for her sister to live over 5 years ago. and her sister pays her the mortgage, taxes, and insurance) Since she is not receiving FMV for the rent, it is considered personal -Hobby transaction, per IRS Reg. She gets to write of the mortgage Interest and taxes on Schedule A). However, she must include the income she receive as other Income, and she can not claim any losses.

Now, she wants to claim it as rental property. So, we had to go through all this over again. Then she said, oh yeah, I remember us discussing this.