The IRS allows you to deduct certain farming expenses.
The Internal Revenue Service (IRS) allows numerous tax deductions for farmers, including deductions related to raising livestock. You may qualify for deductions directly related to your livestock expenses, such as breeding fees and certain feed purchases, along with general farming business expenses, such as labor and repair costs. You may also qualify for a deduction for limited operating losses, but the IRS does not allow you to deduct personal expenses. IRS deduction rules can change yearly.
Operating Expenses
The IRS allows you to deduct numerous farm operating expenses. For example, you may qualify for a tax deduction for your breeding fees and feed costs. You can typically deduct certain worker costs, such as regular or contract wages for your farm operation. However, you cannot deduct wages for labor associated with construction of new farm buildings. You may qualify for a deduction for the cost of repairing farm equipment, such as trucks or tractors, and can deduct property taxes paid on farm assets, such as land, equipment, farm buildings and livestock. If you have farm mortgages, you can typically deduct the interest you pay on the loans. IRS rules differ, depending on the type of operating expense, and deduction limits may apply.
Capital Expenses
In most cases you cannot deduct costs related to capital expenses, such as improvements made to buildings or the purchase of land, equipment or vehicles. The IRS does not typically allow deductions for livestock purchases or costs associated with activities such as drilling wells or installing fences. However, expenses associated with reforestation or conservation of water or soil on your farm may be deductible. If you are just starting a farm, the IRS allows you to deduct a limited amount of your startup costs.
Operating Losses
While the IRS allows you to deduct limited operating losses, rules can differ depending on the type of activity that incurs the loss. You can typically deduct limited losses associated with at-risk activities. These can include money you borrow for your farm operation for which you are held personally responsible. You may also qualify for losses associated with passive activities, typically involving rental of farm assets, such as land or equipment. The IRS imposes different deduction limits on at-risk and passive activities.
Personal Expenses
If you live on your farm, you must separate your business expenses from your personal and family costs. The IRS does not allow you to deduct personal expenses. You may incur certain costs as part of both your personal life and farm operation, such as for electricity, water and gasoline. For example, you may use 75 percent of your fuel purchases for your farm operation and only 25 percent in your home. In such a case, you can only claim 75 percent of your fuel expenses on your farm tax return.
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