§ 464. Limitations on deductions for certain farming expenses

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(a)General rule In the case of any taxpayer to whom subsection

(d)applies, a deduction (otherwise allowable under this chapter) for amounts paid for feed, seed, fertilizer, or other similar farm supplies shall only be allowed for the taxable year in which such feed, seed, fertilizer, or other supplies are actually used or consumed, or, if later, for the taxable year for which allowable as a deduction (determined without regard to this section).

(b)Certain poultry expenses In the case of any taxpayer to whom subsection

(d)applies—

(1)the cost of poultry (including egg-laying hens and baby chicks) purchased for use in a trade or business (or both for use in a trade or business and for sale) shall be capitalized and deducted ratably over the lesser of 12 months or their useful life in the trade or business, and

(2)the cost of poultry purchased for sale shall be deducted for the taxable year in which the poultry is sold or otherwise disposed of.

(c)Exception Subsection

(a)shall not apply to any amount paid for supplies which are on hand at the close of the taxable year on account of fire, storm, or other casualty, or on account of disease or drought.

(d)Certain persons prepaying 50 percent or more of certain farming expenses

(1)Taxpayer to whom subsection applies This subsection applies to any taxpayer for any taxable year if such taxpayer—

(A)does not use an accrual method of accounting,

(B)has excess prepaid farm supplies for the taxable year, and

(C)is not a qualified farm-related taxpayer.

(2)Qualified farm-related taxpayer

(A)In general For purposes of this subsection, the term “qualified farm-related taxpayer” means any farm-related taxpayer if—

(I)the aggregate prepaid farm supplies for the 3 taxable years preceding the taxable year are less than 50 percent of,

(II)the aggregate deductible farming expenses (other than prepaid farm supplies) for such 3 taxable years, or

(ii)the taxpayer has excess prepaid farm supplies for the taxable year by reason of any change in business operation directly attributable to extraordinary circumstances.

(B)Farm-related taxpayer For purposes of this paragraph, the term “farm-related taxpayer” means any taxpayer—

(i)whose principal residence (within the meaning of section 121) is on a farm,

(ii)who has a principal occupation of farming, or

(iii)who is a member of the family (within the meaning of section 461(k)(2)(E)) of a taxpayer described in clause

(i)or (ii).

(3)Definitions For purposes of this subsection—

(A)Excess prepaid farm supplies The term “excess prepaid farm supplies” means the prepaid farm supplies for the taxable year to the extent the amount of such supplies exceeds 50 percent of the deductible farming expenses for the taxable year (other than prepaid farm supplies).

(B)Prepaid farm supplies The term “prepaid farm supplies” means any amounts which are described in subsection

(a)or

(b)and would be allowable for a subsequent taxable year under the rules of subsections

(a)and (b).

(C)Deductible farming expenses The term “deductible farming expenses” means any amount allowable as a deduction under this chapter (including any amount allowable as a deduction for depreciation or amortization) which is properly allocable to the trade or business of farming.

(e)Farming For purposes of this section, the term “farming” means the cultivation of land or the raising or harvesting of any agricultural or horticultural commodity including the raising, shearing, feeding, caring for, training, and management of animals. For purposes of the preceding sentence, trees (other than trees bearing fruit or nuts) shall not be treated as an agricultural or horticultural commodity.

(Added Pub. L. 94–455, title II, § 207(a)(1), Oct. 4, 1976, 90 Stat. 1536; amended Pub. L. 95–600, title VII, § 701(l)(3), Nov. 6, 1978, 92 Stat. 2907; Pub. L. 97–354, § 5(a)(30), Oct. 19, 1982, 96 Stat. 1695; Pub. L. 99–514, title IV, § 404(a), (b)(1), title VIII, § 803(b)(8), Oct. 22, 1986, 100 Stat. 2223, 2224, 2356; Pub. L. 100–647, title I, § 1008(a)(4), Nov. 10, 1988, 102 Stat. 3437; Pub. L. 105–34, title III, § 312(d)(1), Aug. 5, 1997, 111 Stat. 839; Pub. L. 113–295, div. A, title II, § 221(a)(58)(A), (B)(i), (C), (D), Dec. 19, 2014, 128 Stat. 4047; Pub. L. 115–141, div. U, title IV, § 401(a)(118), (119), Mar. 23, 2018, 132 Stat. 1190.)

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