1995, $4,900 in 1996, $2,950 in 1997, and $1,775 

 in later years [IRC 280F(a)(l)(A)]. 



2. Truck is listed property and is used 50% or 

 less in a trade or business. The depreciation is 

 then limited to the (slowest) alternative MACRS 

 rate [IRC 168(g)]. Business use that exceeded 

 50% of total then fell below 50% requires the 

 taxpayer to recapture the depreciation in ex- 

 cess of alternative MACRS rate. 



For listed property, to claim an expense, you 

 must keep records showing the amount of the ex- 

 pense, time and place of travel, and business pur- 

 pose of the trip. A special concession for farmers is 

 that without any record keeping a farmer can claim 

 75% of the use of a vehicle as business use if vehicle 

 is used during most of business day directly in con- 

 nection with the business of farming. This claim 

 must be elected on the first return filed after the 

 vehicle is placed in service, otherwise it can never 

 be claimed for that vehicle. With proper records, 

 more than 75% might be claimed as business use. 

 IRS interprets the election for undocumented 75% 

 business use as applicable to one vehicle only [Temp. 

 Reg. l-274-67(b)]. 



The standard mileage deduction can be claimed 

 (on line 12 of Schedule F) only if no more than one 

 vehicle is used in the trade or business at the same 

 time. (And the fuel, etc. used in the vehicle should 

 not be claimed as an expense elsewhere on the re- 

 turn.) 



Irrigation Systems and Wells 



If actively used in farming, irrigation systems 

 and wells are depreciable property (and therefore 

 eligible for section 179 deduction). Wells that pro- 

 vide water for poultry and livestock, lined or un- 

 lined, were held to be tangible property, and there- 

 fore depreciable [Rev Ruling 72-222]. An irriga- 

 tion system with fixed pumps and underground 

 pipes also is depreciable [Rev. Ruling 75-151]. 

 Pumps and sprinklers have 7-year lives under 

 MACRS. Wells and underground pipes have 15- 

 year lives. 



Owners of Small Woodlots 



The owner of a small woodlot generally is not 

 holding the timber primarily for sale as part of a 

 business. This causes the sale to be treated as a 

 capital gain on Schedule D. Sale costs also are de- 

 ductible on Schedule D. 



If timber is held for investment the owner can 

 arrange for selective cutting and still get capital 

 gains treatment. But frequent sales and high in- 

 come sales may negate the capital gains-treatment. 

 The owner who personally cuts the timber or sells 

 it as cut, rather than on the stump, is consider in 

 the timber business. In this case, timber is included 

 in a special category subject to capital-gains treat- 

 ment. 



At time of purchase of a timber stand, allocate 

 the purchase between land and timber and report 

 this on form T. Otherwise the value at time of pur- 

 chase will have to be determined retroactively from 

 current information. 



Costs of removing trees or hedgerows are re- 

 garded as one time expenses and must be added to 

 the tax basis of the land. Only if these expendi- 

 tures were for the purposes of soil or water conser- 

 vation may they be treated as currently deductible. 

 However, expenses that occurregularly such as cut- 

 ting back encroaching trees or brush to maintain 

 production on land are deductible currently. 



Renting from Spouse May Reduce 

 FICA Tax 



Payment of rent to spouse is a device that may 

 reduce FICA tax. The spouses must have a bona 

 fide landlord-tenant relationship. The landlord 

 spouse should preferably own the land (though joint 

 ownership with the tenant spouse is possible), 

 should charge fair market rent, should execute a 

 lease, should keep rent income separate from funds 

 used in farm operation and must avoid material par- 

 ticipation in the farming business. If all these con- 

 ditions are met the rent is reported on Schedule E 

 where it is not subject to FICA tax. 



Payment of Wages with Commodities 

 Avoids FICA Tax But Not Income Tax 



Remuneration paid in any medium other than 

 cash for agricultural labor is excluded from wages 

 subject to FICA taxes [IRC 3121(a)(8)(A)]. That is, 

 the transfers are not equivalent to cash. In 1994, 

 the IRS issued guidelines for when a transfer of 

 property constitutes non-cash payment for labor. 

 The guidelines are a narrow interpretation of IRC 

 3121(a)(8)(A) and are not binding, but departures 

 are likely to be challenged by the IRS. 



1. Exercise of dominion and control by employee 

 is required for bona fide non-cash transfer. 



16 



Fruit Notes, Winter, 1996 



