Page 267 - Individual Forms & Instructions Guide

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
property used in your farming business. For details on how to tion 263A. Section 263A generally doesn't apply to the follow-
figure recapture, see section 30C(e)(5). ing expenses.
• Any income from breeding fees, or fees from renting 1. Producing any plant that has a preproduction period of 2
teams, machinery, or land that isn't reported on Schedule E years or less.
(Form 1040) or Form 4835. 2. Raising animals.
• The gain or loss on the sale of commodity futures con-
tracts if the contracts were made to protect you from price 3. Replanting certain crops if they were lost or damaged by
changes. These are a form of business insurance and are con- reason of freezing temperatures, disease, drought, pests, or
sidered hedges. If you had a loss in a closed futures contract, casualty.
enclose the amount of the loss in parentheses. Exceptions (1) and (2) don't apply to tax shelters, farming
• The amount of any payroll tax credit taken by an employ- syndicates, partnerships, or corporations required to use the ac-
er for qualified paid sick leave and qualified paid family leave crual method of accounting under section 447 or 448(a)(3).
under the FFCRA and the ARP. See Form 941, lines 11b, 11d,
13c, and 13e; Form 944, lines 8b, 8d, 10d, and 10f; or Form Special rules apply to exception (3) if replanting costs are
943, lines 12b, 12d, 14d, and 14f. You must include the full paid or incurred by a taxpayer other than the person described
amount (both the refundable and nonrefundable portions) of the in section 263A(d)(2)(A). See section 263A(d)(2)(B) and (C)
credit for qualified sick and family leave wages in gross in- for these different rules. Under section 263A(d)(2)(C), there is
come for the tax year that includes the last day of any calendar a temporary rule for replanting costs of citrus plants that are
quarter with respect to which a credit is allowed. paid or incurred after December 22, 2017, and on or before De-
cember 22, 2027.
Note. A credit is available only if the leave was taken after Small business taxpayer. A small business taxpayer is one
March 31, 2020, and before October 1, 2021, and only after the that has gross receipts of $27 million or less for the 3 prior tax
qualified leave wages were paid, which might under certain cir- years and is not a tax shelter, as defined in section 448(d)(3).
cumstances not occur until a quarter after September 30, 2021, See also the inflation adjustment in Rev. Proc. 2021-45 (upda-
including quarters during 2022. Accordingly, all lines related to ted annually), which increased the threshold for small business
qualified sick and family leave wages remain on the employ- taxpayers from $26 million to $27 million for taxable years be-
ment tax returns for 2022. ginning in 2022.
For property acquired and hedging positions estab- If you capitalize your expenses, don't reduce your deduc-
! lished, you must clearly identify on your books and re- tions on lines 10 through 32e by the capitalized expenses. In-

CAUTION cords both the hedging transaction and the item(s) or stead, enter the total amount capitalized in parentheses on
aggregate risk being hedged. line 32f (to indicate a negative amount) and enter “263A” in
the space to the left of the total. See Preproductive period ex-
Purchase or sales contracts aren't true hedges if they offset penses, later, for details.
losses that already occurred. If you bought or sold commodity
futures with the hope of making a profit due to favorable price But you may be able to currently deduct rather than capital-
changes, report the profit or loss on Form 6781 instead of this ize the expenses of producing a plant with a preproductive peri-
line. od of more than 2 years.
Election to deduct certain preproductive period expenses.
Part II. Farm Expenses If the preproductive period of any plant you produce is more
than 2 years, you can elect to currently deduct the expenses
rather than capitalize them. But you can't make this election for
Don't deduct the following. the costs of planting or growing citrus or almond groves incur-
• Personal or living expenses (such as taxes, insurance, or red before the end of the fourth tax year beginning with the tax
repairs on your home) that don't produce farm income. year you planted them in their permanent grove. You are trea-
• Expenses of raising anything you or your family used. ted as having made the election by deducting the preproductive
• The value of animals you raised that died. period expenses in the first tax year for which you can make
• Inventory losses. this election and by applying the special rules, discussed later.
• Personal losses.
If you were repaid for any part of an expense during the In the case of a partnership or S corporation, the elec-
same year, you must subtract the amount you were repaid from ! tion must be made by the partner, shareholder, or
the deduction. CAUTION member. This election can't be made by tax shelters,
farming syndicates, partnerships, or corporations required to
Capitalizing costs to property produced and property ac- use the accrual method of accounting under section 447 or
quired for resale. If you produced real or tangible personal 448(a)(3).
property or acquired property for resale, you must generally
Unless you obtain IRS consent, you must make this election
capitalize certain expenses to your inventory or other property. for the first tax year in which you engage in a farming business
These expenses include the direct costs of the property and any
indirect costs properly allocable to that property. involving the production of property subject to the capitaliza-
tion rules. You can't revoke this election without IRS consent.
For tax years beginning after 2017, small business taxpay-
ers, defined later, are not required to capitalize costs under sec-

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