I 



to earlier years and give rise to tax refunds for those 

 previous years. If the loss is not exhausted in earlier 

 years, it may be carried forward to later years and 

 reduce the tax for those years. Hence, the limitation 

 on farm losses would be applied to net operating losses 

 to ensure that losses in excess of the limitation during 

 one year may not be used as a net operating loss 

 deduction in another year. 



Overall, this option is intended to: (1) discourage 

 the operation of Montana farms and ranches as tax 

 shelters or as tax-loss farming operations; and 

 (2) eliminate tax benefits to persons who engage in 

 farming for other than food or fiber production. 



According to the Montana Department of Revenue, 

 this option would result in an estimated $4.4 million 

 increase in state tax revenues." 



Discussion n 



Farm losses are generally deductible in computing 

 an individual's taxable income if such losses: (1) are 

 incurred in a trade or business; or (2) result from 

 transactions entered into for profit. °^ 



y 



Deductible losses are of several kinds consisting 



primarily of: 



(1) losses from the sale or exchange of property; 



(2) losses attributable to property held for the 

 production of rents or royalties; 



51 



