With Farming and Farm Purpose
MDPT can only be utilized with farms and farming purposes. I.R.C. § 453 and I.R.C. § 2032A(e)(4) states the term “farm” includes stock, dairy, poultry, fruit, furbearing animals, and truck farms, plantations, ranches, nurseries, ranges, greenhouses, orchards, and woodlands. I.R.C. § 453 and I.R.C. § 2032A(e)(5) states that the term “farming purposes” means – cultivating the soil or raising or harvesting any agricultural or horticultural commodity on a farm; handling, drying, packing, grading, or storing on a farm any agricultural or horticultural commodity in its un-manufactured state; and the planting, cultivating, caring for, or cutting of trees, or the preparation (other than milling) of trees for market.
Following the IRS guidelines is a requirement. Therefore, you may have a bin full of soybeans that when sold, could have the taxes deferred for up to 30 years. However, if you were to treat those soybeans so they become seed beans they are ‘manufactured’ and could not utilize MDPT with the sale of the seed beans.
Another example is depreciable assets. If you have a depreciated (for tax purposes) center pivot irrigation system on you land, its value would have to be deducted from the farm land sale when MDPT is calculated. The IRS does not allow inclusion of depreciable assets in the MDPT process. But corn, soybeans, wheat, cattle, grapes, alfalfa hay, pasture, hogs and farm/ranch land can all be included in MDPT.
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