Option #8 



Restrict the amount of farm losses that may be 

 deducted against nonfarm income for Montana 

 income tax purposes. 



Explanation 



This option would limit the tax deduction for farm 

 losses based on a graduated system that would cap farm 

 loss deductions at $20,000 for individuals earning less 

 than $75,000 in nonfarm income, and completely eliminate 

 the farm loss deduction for individuals who earn 

 $400,000 or more in nonfarm income. This limitation 

 would apply to all net farm losses from any trade or 

 business, rental activity. Subchapter S. corporation, 

 partnership, estate, or trust. The limitation would not 

 extend to any deductions currently allowed for certain 

 capital losses and recognized losses from the sale, 

 exchange, or involuntary conversion of property. 



In the case of married individuals, the farm loss 

 deduction would be limited based on the combined nonfarm 

 adjusted gross income of both spouses, whether they 

 elect to file a joint return or file separately. This 

 is considered necessary to prevent married persons from 

 transferring income or losses to their spouse in order 

 to avoid the limitation on the deductibility on farm 

 losses. 



For the purpose of consistency, the limitation 

 would apply to computation of the net operating loss 

 deduction. Under current law, a net operating loss 

 sustained in one year may be used to reduce the taxable 

 income of other years. ^-^ This loss may be carried back 



50 



