Farming Loss

[jlew1229]

Client called me the other day to ask if they could take a loss on their return.   They raise goats, and have the seman collected and stored.    The storage place had an issue with the Nitro tank they were stored in and now they are worthless.  They were reimbursed for the cost of collection, but not the lost revenue.   The accountant for the storage facility told them to take this lost revenue on their taxes.    They do their return on the Cash basis.   The seman is irreplaceable as they no longer have some of these goats, hence why they stored the seaman, to produce this pedigree in the future  

I don't know of how they can take a loss when they have not claimed any income against it in the past. 

I have looked at 1.165-6 farming losses, but there does not seem to be anything to back up what they are being told.     Hopefully the community knows something I missed?    

Thank you in advance. 

[Paige Adcock]

Yes, you can take a farm loss on Schedule F with zero income.  It happens all the time in timber farming and often in the first year or two of livestock farming.  Simply enter the expenses on Schedule F.

[jlew1229]

Sorry, I didn't explain it correctly.   

They want to take a loss for the revenue they would have received if the seman survived and they were able to produce goats to sell. 

So if those goats they would have been able to produce if the seman survived could have brought them $5000 in revenue, they want to take a $5000 loss against their farming income.   

[qbteachmt]

"They were reimbursed for the cost of collection, but not the lost revenue."

We have a saying here: you cannot write Off what you did not write On.

There is no Revenue to write off, for tax purposes. Otherwise, what's to prevent you from valuing something at some inflated market rate? Especially in light of their Cash Basis, which means: we didn't lose any realized revenue; we lost Potential revenue.

And since they got reimbursed for their costs, they cannot write off that expense, either, even though they lost the asset and any basis in it.

[abctax55]

"Ya can't write off what you didn't write on"

(Chuck, right?  RIP).

In other words, no, they can't.  Unless they also choose to report the un-received income.  Any direct costs are deductible, but not the foregone income.  

[abctax55]

(oops... didn't see your response @qbteachmt when I posted...).  Great minds and all that 🤣