Tax Tips Department
Tax Benefits from Raising Elk
by Sue Whittlesey
One of the many tax benefits from raising elk is the ability
to depreciate business assets and to take the Section 179 deduction that allows
you to fully write off a certain amount of depreciable assets in the year of
purchase. This article answers many of the questions which you may have about
depreciation of farm assets.
Generally, what can be depreciated?
1. The property must be used in business or
held for the production of income.
2. The property must have a determinable useful
life of more than one year.
3. The property must be something that wears
out, decays, gets used up, becomes obsolete, or loses value from natural
What types of farm and ranch property can be depreciated?
1. Livestock that is purchased for work,
breeding, or dairy purposes and which is not kept in an inventory account may
2. Raised livestock usually has no depreciable
basis because the costs of raising it are deducted as expense and are not added
to its cost basis. However, if you purchase immature livestock for draft,
dairy, or breeding purposes, you can depreciate your initial cost once they
reach maturity for draft, dairy, or breeding purposes. Therefore, if you purchase an elk heifer
calf in the year she is born, you would not be able to depreciate her until the
following year when she is bred.
3. Irrigation systems and water wells can be
depreciated if they are composed of masonry, concrete, tile, metal, or wood. In
addition, you can depreciate costs for moving dirt to make irrigation systems
and water wells composed of these materials.
Agricultural structures and farm buildings (including fences!!) can be
5. Farm machinery and equipment can be depreciated.
6. Grain bins can be depreciated.
7. The “normal” business assets, such as those
you depreciate in your other businesses, can be depreciated.
What cannot be depreciated?
1. Property placed in service and disposed of
in the same year
3. Inventory (assets held for resale)
4. Leased property
5. Trademark and trade name
When does depreciation begin and end?
1. You begin to depreciate your property when
you place it in service for use in your business. You place property in service
when it is ready and available for a specific use. For example, you bought a planter for your farm business late in
the year after harvest was over. You take a depreciation deduction for the
planter beginning in the year of purchase because it was ready and available
for its specific use even though you did not actually use it until the
2. You retire property from service when you
permanently withdraw it from use in a business. You can retire property from
service by selling, exchanging, abandoning, or destroying it (which includes
death of livestock).
How do I claim the depreciation deduction for my farm
Form 4562 to claim depreciation deductions and to elect the Section 179
deduction (which follows later).
The following is a sample table of depreciation lives for
General Depreciable Systems Life (years)
Farm buildings 20
Farm machinery and equipment 7
Fences (agricultural) 7
Cattle, bison, elk, etc. (breeding) 5
Grain bin 7
Water wells 15
What are some of the different methods of depreciation?
1. The 150% declining balance method over the
General Depreciable Systems Life recovery period, switching to the straight
line method when that method provides a greater deduction
2. The straight line method over the GDS
Can I use the 200% declining balance depreciation method
that I use in my business?
farm and ranch depreciable assets must use the 150% method or straight line method.
Could you give an example of the percentages for
depreciation for each year for my elk using 150% declining balance method.
What ranch property qualifies for Section 179 deduction?
1. Machinery and equipment
2. Agricultural fences
Livestock (Elk are classified as livestock, per the USDA.)
What is the Section 179 deduction?
year 2000 you may elect to expense up to $20,000 of qualifying property in the
year it was purchased rather than to depreciate that portion of the property.
In 2001 the amount increases to $24,000.
The above questions were answered by referencing the IRS
publication 225, “Farmer’s Tax Guide.” This guide is available on the Internet
at http://www.irs.ustreas.gov. I highly recommend that you make sure that your tax
preparer is familiar with this publication because there are many differences
between “normal businesses” and the elk-raising business!
Sue Whittlesey retired
from her CPA practice almost six years ago to become a full-time elk and bison
rancher. You can find more of Sue's tax tips at The High Wire Ranch Website. You can forward specific questions to her at email@example.com.