What to do with cattle as a depreciated asset when part are sold? Income and cost on SCH F.

[ams3261]

We have 33 head of cattle listed as a depreciable asset from 2015. 7 head were sold in 2017. I reported the income and cost on my SCH F. Now do I reduce the number from 33 to 26 on the asset. Trying to follow PUB 225 but getting lost.

[Carl]

@Cattlerancher if you still frequent this forum, this one is right up your area of expertise.

[TaxGuyBill]

1. Print out the "Depreciation and Amortization" worksheet (you may need to select the 'all worksheets' to  find  it).  It is the sideways looking spreadsheet. 
2. Create a new "asset" for 26 cattle.  Use 26/33ths of the original cost of all 33, and 26/33ths of the "prior depreciation" that from your "Depreciation and Amortization" worksheet.
3. Create a new "asset" for 7 cattle.  Use 7/33ths of the original cost of all 33, and 7/33ths of the "prior depreciation" that from your "Depreciation and Amortization" worksheet.  Then indicate that "asset" was sold, and enter the sales information.
4. After verifying your two 'new' assets look right, delete the old asset that showed all 33 cattle.

[ams3261]

So I filed online last year, in looking at adding an asset do I say that cattle are "new"or "none of the above"? Also its asking Prior Year Sec 179 Deduction, how do I determine that? It also pre-calculated the prior depreciation for me? But I need to take 7/33s of the depreciation showing for the 33 for prior years depreciation? Apologies for 20 ?s just getting my feet wet at this.

[Critter]

They are not new ... what you are doing is splitting up the current situation into 2 parts so you can sell off one.  Usually cattle are considered inventory if you buy & sell them not assets.  They are considered assets if they are breeding stock.  And if they are born on the farm they are neither inventory or assets. If the 7 head you sold were assets they really should have been entered individually for depreciation instead of in one large group.

[Carl]

I knew there was something about weather cattle were inventory or assets. Just didn't know the difference until now. TGBill's answer applies, provided the cattle sold were breeding stock, and therefore assets.

[ams3261]

My sale of the business property is showing a gain of $5133 when the actual gain was $3105?? I am concerned I am not doing this correctly. I followed the instructions above for the cost and depreciation but then the questions increase for MARCS, Sec 179, sale amount, sale expense (business portion only, I did not list cost here)? Any additional advice. Thank you!

[Carl]

Understand that when you sell business property, all prior depreciation is recaptured and taxed in the year you sell it. So the extra $2028 you're seeing is more than likely that recaptured depreciation.

[TaxGuyBill]

Let's use a simplified example of what Carl mentioned.  Let's say that the 7 cattle originally cost $5,000 and you sold them for $8,000.  Let's also say you took a total of $2000 in depreciation from 2015 through the first part of 2017 (you get a partial year of depreciation on your current tax return).

In that example, your Gain is $5,000 (not $3,000) because the $2000 of depreciation lowered your "Basis" (similar to Cost).

With that in mind, does your sale showing a Gain of $5133 make sense?  Or does it still seem wrong?