To join in on this discussion, you must first log in.

Discussion:Tree Farm - No dead kittens

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Advanced Tax Questions --> Tree Farm - No dead kittens


Discussion Forum Index --> Tax Questions --> Tree Farm - No dead kittens

Fsteincpa (talk|edits) said:

2 March 2008
After searching and finding out that Kevin has posted another excellent information source, I still have questions and Radio Shack won't return my call.

Client was a dairy farmer, no longer. That ended last year. Now he is starting a tree farm. Won't be any sales for approx 6 to 10 years. He will be planting $300 to $1,000 worth of new trees each year. Eventually they will be ready for sale.

Went to website and I want to confirm my understanding.

Costs associated with purchase of trees would go into inventory and recovered when the trees are sold?

Fertilizer, land taxes and other tree maintenance costs - inventory or expensed each year?

Purchases of farm equipment and other expenses could still be taken on the Sch F each year?

Thanks

Fred

RoyDaleOne (talk|edits) said:

2 March 2008
I would suggest you do a search here or google for tree farming tax guide or something like that, because you need an understanding of the options available to a tree farmer so that you can give advice to your client. Without knowing the various options I don't think you can give the best advice. By the way I did the search and found very good references.

I am just trying to be helpful.

Fsteincpa (talk|edits) said:

2 March 2008
Doing the searches now actually. Above post was based on initial reading from the national tree growers association website.

Was hoping we had tree experts here and would have immediate answers and I could obtain the quick and easy edjumakation.

Farmer will have very little expenses going forward. Won't be doing anything until this summer's planting season. But, I had the standing timber sale issue and figured two birds with one post.

Moon101 (talk|edits) said:

7 March 2014
I have a client who just created an LLC back in December of 2013 with his wife and they are converting some land to a tree farm. My understanding is that most expenses related to the “ingredients” of a tree are considered Inventory.

I have some questions about tree farming:

1. When the trees are sold in 10 years or so, are they considered capital property, is it part of trade/business (page 1 of 1065), or is Schedule F?
2. The client purchased about $100,000 of equipment between 2011-2013 related to the tree farming (mainly tractors, ATV’s, etc.). We are going to use the FMV of the assets purchased prior to creating the LLC and capitalize them. My questions are:
a. Do we capitalize them on Schedule F or trade/business?
b. Also, do we amortize them for 15 years instead of taking 7 years on each piece of equipment?

Nilodop (talk|edits) said:

7 March 2014
Is the LLC to be taxed as a corporation? Did the equipment have a FMV lower than its cost? Was the equipment being used before creation of the LLC?

Moon101 (talk|edits) said:

7 March 2014
LLC is not taxed as a corp. FMV is less than basis. The equipment had some use. No income has been earned in the farming business and no income will be earned for another 10 years.

Nilodop (talk|edits) said:

7 March 2014
I claim no expertise in farm taxation. However, the answers to your questions in number 1 are spelled out in Pub 225 http://www.irs.gov/pub/irs-pdf/p225.pdf You need to know what type of tree farm, for example. Ornamental? Christmas trees? Timber? Fruit trees? Other? You need more knowledge of farm taxation than I have, for sure.

Your answer regarding the equipment is a bit vague. The equipment had some use, is what you say. Before they bought it? Use by them? Personal use or use in the tree farm business? Did they depreciate it when they used it? Did it have debt against it? Did they buy it jointly?

Has the transfer to the LLC already occurred? Was the equipment jointly owned? Will the LLC be 50/50? Is the reason for the LLC to limit liability? Did they consider operating as a Qualified Joint Venture (not available to a LLC) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Election-for-Husband-and-Wife-Unincorporated-Businesses The statement that you plan to use FMV of the assets purchased prior to creating the LLC is a bit of a mystery. There are basis rules for contributions to partnerships.

The depreciation questions you ask are also well covered in the Pub. 15 and 7 years may not be the right choices, and the methods also vary.

Your question about Schedule F or trade or business is also a bit of a mystery. If they are a partnership, use Form 1065. Somehow, I have a feeling you will want to re-consider partnership treatment if it is not too late, but what do I know?

Fsteincpa (talk|edits) said:

12 March 2014
There are certain expenses that may be claimed each year. At least when n relation to a christmas tree farm. I am sure it applies to other farms as well.

Kevinh5 (talk|edits) said:

12 March 2014
candy canes, cookies for Santa, glasses of milk, ornaments.....

Fsteincpa (talk|edits) said:

12 March 2014
The dead kittens is what lured ya, wasn't it?

To join in on this discussion, you must first log in.
Personal tools