Which of the following is most likely to qualify for depreciation for tax purposes?

Which of the following is most likely to qualify for depreciation for tax purposes?

• A. Livestock purchased for breeding or dairy purposes
• B. Land acquired for farming
• C. Cash on hand
• D. Inventories held for sale

Answer: (A)

Depreciation is the tax deduction you can take for tangible property that you use in the farm business and that wears out or loses value over time. Only assets with a limited, real useful life qualify. Breeding or dairy livestock fits this idea because the animals have a finite productive life and their value declines as they age and through their production cycles. This makes them eligible for depreciation as a farm asset. Land, on the other hand, is not depreciable because it typically has an indefinite life and does not wear out in the way other assets do. Cash on hand isn’t a capital asset either and isn’t depreciated. Inventories held for sale are current assets used to produce revenue and are expensed as cost of goods sold when sold, not depreciated. So the livestock purchased for breeding or dairy is the asset most likely to qualify for depreciation.

Depreciation is the tax deduction you can take for tangible property that you use in the farm business and that wears out or loses value over time. Only assets with a limited, real useful life qualify. Breeding or dairy livestock fits this idea because the animals have a finite productive life and their value declines as they age and through their production cycles. This makes them eligible for depreciation as a farm asset.

Land, on the other hand, is not depreciable because it typically has an indefinite life and does not wear out in the way other assets do. Cash on hand isn’t a capital asset either and isn’t depreciated. Inventories held for sale are current assets used to produce revenue and are expensed as cost of goods sold when sold, not depreciated. So the livestock purchased for breeding or dairy is the asset most likely to qualify for depreciation.