taxpayers in the 15% bracket) on collectibles 

 (works of art, coins, etc.), on recaptured 

 depreciation of personal property, and on 

 recaptured depreciation on real property that 

 exceeds the straight line depreciation amount; 

 25% (or 15% for taxpayers in the 15% bracket) 

 on the depreciation of real estate taken on a 

 straight line basis note this change, all real 

 estate depreciation is now recaptured, not 

 just the excess over straight line depreciation; 

 or 20% (10% for taxpayers in the 15% bracket) 

 on all other sales this rate is the basic rate for 

 capital gains and losses except for the 

 situations described for the higher rate. 

 Beginning in 2001, the 20% rate drops to 18% 

 (10% drops to 8%) for assets purchased on or 

 after January 1, 2001 and then held for five 

 years. 



The way to treat capital losses was not clear 

 from TRA97. On Schedule D of Form 1040, the 

 IRS has followed the anticipated changes in the 

 Technical Corrections Bill that still awaits 

 passage. Basically, short-term losses, if any, 

 are applied first to reduce short-term gains, 

 then to reduce long-term gains in the order: 

 gains in the 28%, 25%, then 20% group. Long- 

 term losses in the 28% group are used against 

 the 25%, then the 20% group. Losses in the 20% 

 group are set off first against the 28% group, 

 then the 25% group. 



Massachusetts capital gains rules are 

 different. Gain on property held more than one 

 year is taxed at 5% and on property held more 

 than two years at 4%. In each succeeding future 

 year, the rate will drop one percentage point for 

 each additional year that the property is held. 



Alternative Minimum Tax 



If you recently sold a commodity on a 

 deferred-payment contract and paid alterna- 

 tive minimum tax, you can defer the payment 

 for both regular income tax and AMT 

 purposes. TRA97 repealed I.R.C. § 56(a)(b), 

 effective 1987. You can amend your return for 

 any past year that is still open to amendment 

 (usually the prior three years). 



Example: You delivered corn to an elevator 

 in 1995 and received pajonent for it in 1996. For 



regular income tax purposes, you treated the 

 sale as 1996 income. For AMT purposes it had 

 to be treated as income in 1995. You paid AMT 

 in 1995. You may file amended returns (1040X) 

 for 1995 and 1996. 



Alternative Minimum Tax 

 Depreciation Aef/ustment 



TRA97 allows the same recovery period for 

 both regular tax and (AMT) purposes. 

 Previously (AMT) required a longer alternative 

 MACRS recovery period. Both regular and 

 AMT recovery periods are now the same for 

 assets placed in service after 1998. 



Income Averaging /or Farmers 



To give farmers subject to year-to-year 

 fluctuations in income some relief, TRA97 

 institutes a new code section (I.R.C. § 1301) 

 that permits taxpayers "engaged in the 

 farming business" (as defined in I.R.C. § 

 263A(e)(4)) to average over the three prior 

 years all or a portion of their taxable income 

 derived fi"om farming. The provision is effective 

 for the tax years 1998, 1999 and 2000. An 

 eligible taxpayer elects to have all or part of 

 farming income averaged. The election is 

 irrevocable (cannot be changed by filing an 

 amended return in later years). Gains from the 

 sale of assets (other than land) "regularly 

 used by the taxpayer in the farming business 

 for a substantial period" can be averaged also. 

 One-third of the amount averaged ("elected 

 farm income") is allocated to each of the three 

 prior years. Tax of an electing farmer would be 

 the tax on the amount remaining after 

 allocation (say in 1998) plus the additional 

 taxes that would have been paid in 1995, 1996, 

 and 1997 if the one-third of elected farm income 

 had actually been received in each of those 

 years. Presumably, the IRS will develop a tax 

 form where the election and the necessary 

 calculations can be made. The amount of 

 income allocated to prior years stays in those 

 years as additional income, reducing the 

 benefits from income averaging in succeeding 

 years. 



Fruit Notes, Volume 62 (Number 3), Summer, 1997 



