Income: | ||
Proceeds from sale of his 1963 yield of corn | $10,000 | |
Proceeds from sales of milk | 8,000 | |
Gain from disposition of old breeding cows | 500 | |
Gain from sale of tractor | 100 | |
Gain from sale of farmland | 5,000 | |
Interest on loan to brother | 100 | |
23,700 | ||
Deductions: | ||
Cost of labor | 4,000 | |
Cost of feed | 3,000 | |
Depreciation on farm equipment and buildings | 2,500 | |
Cost of maintenance, fuel, etc | 2,000 | |
Interest paid, mortgage on farm buildings | 1,000 | |
Interest paid, personal loan | 500 | |
Loss on destruction of barn | 2,000 | |
Loss on sale of truck | 300 | |
Section 1202 deduction-gain on sale of cows (500 * 1/2) | 250 | |
Section 1202 deduction-net gain on disposition of section 1231 property, other than cows [$2,800 ($5,100-$2,300) * 1/2 ] | 1,400 | |
--- | $16,950 | |
Net income before section 182 deduction | 6,750 |
For purposes of computing taxable income derived from farming under section 182, the following items of income and deductions are not taken into account:
Income: | ||
Gain from the sale of tractor | $100 | |
Gain from the sale of farmland | 5,000 | |
Interest on loan to brother | 100 | |
--- | $5,200 | |
Deductions: | ||
Interest paid, personal loan | $500 | |
Loss on destruction of barn | 2,000 | |
Loss on sale of truck | 300 | |
Section 1202 deduction-Net gain from disposition of 1231 assets other than cows | 1,400 | |
--- | $4,200 |
A's "taxable income derived from farming" for purposes of section 182 is $5,750; income of $18,500 ($23,700-$5,200), less deductions of $12,750 ($16,950-$4,200). A may deduct $1,437.50 (25% of $5,750) under section 182. The excess expenditures in the amount of $562.50 are to be charged to capital account and serve to increase the taxpayer's basis of the land.
26 C.F.R. §1.182-5