Schedule F – Profit/Loss from Farm (Final Page)

Business Use of Vehicles – 75% Rule

Farmers can claim 75% business use for vehicles used primarily for farming business instead of keeping records of business mileage.  Once this method is elected, it must be used in future years.  Like-wise, if the standard mileage rate or actual expenses method is elected, the farmer cannot revert to the 75% rule.

Section 179 Deduction – Farm Property

Farm property that qualifies for a Section 179 deduction includes:

(1)Tangible personal property such as machinery and equipment, milk tanks, automatic feeders, barn cleaners and office equipment.

(2)Livestock

(3)Certain facilities used for the bulk storage of fungible commodities.  This includes grain bins used in connection with the production of grain or livestock.

(4)Single purpose agricultural and horticultural structures.

Depreciating Farm Assets

3, 5, 7, & 10 year MACRS property used in a farming business must be depreciated using the 150% DB or SL method.

Form T (Timber) – Forest Activities Schedule

Generally, Form T should be filed when standing timber is sold or cut, or when there are other timber transactions.  Form T must be completed to claim a deduction for timber depletion, to elect to treat the cutting of timber as a sale or exchange.

Domestic Producer Deduction (DPD)

For 2011, the DPD is 95 of the lesser of the business’s:

(1)Qualified production activities income or

(2)Taxable income (AGI for individuals) determined without regard to the DPD.

The DPD cannot exceed 50% of the wages paid and reported on For W-2 by the business for the year.

Oil and Gas Activities – Individuals with oil-related qualified production activities income must reduce their DPD by 3% of the least of their (1) oil-related qualified production activities income, (2)qualified production activities income, or (3)AGI

Qualified Production Activities Income

To determine the net income that qualifies for the 9% deduction, the taxpayer’s receipts must be divided into those from eligible activities (Domestic Production Gross Receipts DPGR) and non-DPGR.  Then, the taxpayer’s expenses are allocated between the two categories of income.  The DPGR less allocable expenses equals qualified production activities income.

Eligible activities – The following activities generate DPGR if performed in the USA

(1)Manufacture, production, growth or extraction of: (a)Tangible personal property (clothes, goods, food, ag products), (b)Computer software, and (c)Sound recordings.

(2)Certain film production

(3)Production of electricity, natural gas or portable water

(4)Construction or substantial renovation of residential and commercial buildings and infrastructure by taxpayers engaged in the construction business.

(5)Engineering and architectural services performed by a taxpayer engaged in the business of performing engineering or architecture.