Discussion:Dog breeding depreciation

BEGIN QUOTE

Hello,

I have a question about dog depreciation.

I bought a show dog in 2004, bred her in 2006, sold the puppies, and now i am gathering info for 2006 taxes.

I called a tax prepairer in my town, and they do not know how to do the dog depreciation thing, so they are awaing for info from the IRS.

Today, I called the IRS, and the lady said in 15 years, she never received a call about depreciating dogs. So she has to check with someone, and will get back with me in 2 weeks.

She did tell me i would have I depreciate my dog kennel we built in 2005, (7 year MARCS)

Also, i paid a certain price for my dog in 2004, and i owed the breeder 1st pick puppy.

I gave her this puppy in 2006. I was told i can use a fair market value for the cost of this puppy, which would be $1250.00 (minimum price) where do i report this on schedule C?

No one seems to know anything about dog breeder taxes. I have searched the internet, and found this website, and hoping i can get some headway.

Thank you so much!!

Julie END QUOTE

Discussion:Do you depreciate animals kept for breeding business?

And

Discussion:Dog Breeding

Both come to the same conclusion: dogs are not listed in a specific asset class. Therefore, 7 years for regular tax purposes and 12 years for alternative minimum tax purposes.

I am not sure about your other question regarding the cost of your breeder dog being cash plus a later "pick of the litter". Perhaps others can comment.

I had to give the breeder the puppy, so i did not get the income from the puppy.

I need to report it as an expense or something, but where??

I have another question concerning the 7 year depreciation for dogs.

I purchased the dog in 2004, and did not breed her until 2006. I put her into service Jan 2006.

when i look at the MARCS depreciation chart, do i begin with year #1, or do i begin with year #3?

Thank you for the information.

The puppy was born & raised in my home. I could have sold him for $1250.00 to $1750.00, but i owed him to the breeder.

I am not sure what a barter exchange is.

When people buy a show dog, the breeders requires top dollar out right, or they may drop the price, and want a pick puppy or more back. If they do not want the puppy to carry on their bloodlines, they will sell the puppy.

Bbla - the $1250 to $1750 was the value of the puppy, but he didn't sell the puppy; he gave the puppy to the seller because he paid the seller a lower price initially for the breeder dog, per their agreement.

How can this be income, as i paid for the dog in 2004, and gave the breeder 1st pick puppy in 2006 (which i owed her due to agreement when i purchased the show dog). (I could have sold this puppy for a minimum of $1250.00, up to $1750.00)

Wouldn't this come under cost of goods, etc?

Personally, I probably wouldn't bother treating this as a barter exchange, and I would just depreciate the amount you actually paid to the seller for the breeder dog, over 7 years. If you still don't understand what I'm saying, try reading my messages again.

One thing you'll need to remember: Raised animals always have zero cost basis. You will never depreciate any cost for raised animals. When you sell raised dogs or any raised animals, you'll report the sale and deduct zero for the cost and zero for accumulated depreciation. You will deduct your ordinary costs of raising the dogs, such as, feed, vet bills, boarding, grooming, etc, on Schedule C or F, whichever form you're using to report your breeding business.

I just pulled out the folder for a client who breeds cats and horses. I've been depreciating the cost of those animals over 7 years, and I report the sales of their raised animals on Form 4797. The chart on the IRS page above shows where to enter your sales on Form 4797, depending on how long you've held the animals. See Part 7 under Type of Property.

At least I will know what to do if someone comes in the door with one of these. We can't breed crabs down here, we can only catch them.

A tax preparer in my town said I could deduct the puppy which was given to the breeder. But I now have my doubts, and will just forget it, and depreciate the cost of the female.

I want to talk a little more about show breeders cost of breeding a litter.

When we breed, we have to pay for a stud fee. (stud fee's are anywhere from $700.00 to $1300.00, and money is due up front 99% of the time) There are no refunds if the breeding does not take. Most breeder offer a courtesy service for a 2nd breeding.

Then we have to take the female to the vet to run numerical progesterone test which are approximately $30.00 each. It takes about 6 test. And the LH kit is about $100.00 for about 6 test. These test are necessary as they predict breeding dates.

If the breeding is long distance, (chilled) we have to pay for shipping the semen, and the kits they come in. Shipping is over night, cost $125.00 to $200.00 for 2 shipments, Price varies depending on weather the breeder uses clone, ICG or Camelot kits.

We also have to pay for the kits, or at least the extender which is $75.00 to $200.00 for 2 shipments.

Frozen is about $450.00 ( includes tank, shipping to vet, and back to frozen center)

And the fee for AI by vet is approximately $35.00 to $50.00 each.

Surgical AI with frozen semen is about $400.00 - $600.00

The puppies are born inside the house where we can supervise the mom & litter. We have to have a whelping box, heat light, blankets, etc

Also, IF a C-section is needed, that can cost $200.00 to $500.00

Then there is the cost of puppy food,(we use Eukanuba pupp food which is about $23.00 for a 20 pound bag) and vaccinations, (not to mention lost of blood sweat, and tears which is priceless)

I forgot to mention, before a female is bred, her hips & elbows must be x-rayed & certified with OFA. This cost about $240.00+.

And eyes certified with an AVCO, and that is about $45.00 plus a round trip of 390 miles.

And if the attend any dogs, shows, there is the cost of traveling, handler fees, etc

We did a long distance breeding with one of our show girls; we spent about $2300.00 breeding Willow to a dog in CA. This was frozen semen with surgical insemination.

Willow had 10 puppies, and we kept the top 2 females. They are now 2 years old, and I am getting them ready to breed this year.

So you are telling me that puppies we keep & raised have a 0 cost?

I think there should be a special form or something for show dog breeders. If the tax consultant or accountant is not familiar with breeding show dogs, how can they successfully prepare the taxes.

The tax consultants that I have talked with do not have a clue as to what they are doing, which is why I am writing you people.

I called the IRS yesterday to ask about depreciate for dogs, and a lady who specializes in Depreciation said that in 15 years I was the first one to ask that question. She did not know the answer, but someone will call in 2 weeks.

I have found more information from your website, and I greatly appreciate your input.

Thank you so much,

Julie

Yes, I am. But I also mentioned that you can deduct the ordinary and necessary expenses that you incur before and after the puppies are born...breeding fees, vet fees, stud fees, food, supplies, licenses, vehicle expense, show fees, shipping fees, marketing, advertising, tax prep fees relating to the business, and so forth. Any amounts you spend before and after the puppies are born are deductible. I was referring to the initial cost of the puppies. The puppies are born (also called "raised"), so you did not pay for the puppies. When a puppy or any animal is born on your farm (or whatever you want to call your business place), you have no cost for that animal. Your cost basis for raised animals is zero, since you did not purchase those animals. This just means you can't depreciate any cost for puppies that are born.

Sorry, I'm not a farmer, so I'm not familiar with all the terminology for the different animals, breeding, and the various names used for young females and males, and the names used for mature females and males. (I know what a bitch is, and I know what a stud is, but they have nothing to do with animals.) But I've prepared many tax returns for farmers and breeding businesses (horses, cattle, hogs, goats, dogs, cats, etc) in the last 31 years, because I live in a small city surrounded by a lot of rural areas and a lot of farmers.

I understand that dog breeding does not fall under the livestock category, but since the IRS has no documentation relating to dog breeding, I have to treat dog breeding businesses as general livestock. There are no special tax forms for dogs. But the end result in net income, ordinary income, capital gains, and tax is the same as it is with any livestock. The tax forms used for livestock have to be used for dog breeders, and Sch F can be used for dog breeding businesses, because it's better suited for that type of business than Sch C.

I hope this helped a little. Let us know if you have any more questions.

Deb

Julie -

I just read this entire thread over again and noticed your comment, which I copied and pasted just above. This is a good example of what I'm talking about. What was your cost of the blood, sweat, and tears? Right, nothing. This is the same as the cost of the puppies that were born. Your cost was nothing. But, yes, you can definitely deduct all of the amounts you paid out to raise the puppies after they were born, the expenses for the breeders from the time you purchased them, and all of the other business expenses that you incurred. I just wanted to stress that I'm talking about your cost of the puppies for depreciation purposes. There will be no depreciation expense for the puppies. And that's why you can't deduct the value (cost) of the puppy you gave to the seller, because you paid nothing for that first-pick puppy. But you can sure deduct all of the expenses you had for that puppy after he or she was born and before you gave the puppy to the seller.

Just trying to clarify everything a little more.

Might there be a difference in the layman's term "cost" and the accounting definition of "cost" here?

- Tim Doyle, TaxAlmanac Moderator - Talk to me 23:41, 17 January 2007 (CST)

I now understand what you mean about the cost from a tax perspective.

So i cannot depreciate these the dogs that i bred, and keep for future breeding?

I have learned so much from you wonderful people.

Does anyone know what other deductions a dog breeder may be able to use?

I have about $8000.00 in receipts from dog food, vet bills, breeding, mileage, supplies, and a little from advertising. + whatever littlebit i have from depreciation.

And i may have a $200.00 for utilities. I have the business in my home, so i can use about 5% of my utilitie bills.

I am looking at a profit of $16,000. which means i will have to have more puppies to pay the taxes.

Thank you,

Julie

Discussion:Do you depreciate animals kept for breeding business?

By the way, thank you for posting your profile. Not everyone does so, and I appreciate it when people do.

I'm glad this thread got you lots of responses and information. Regards

General Livestock

Although the word "dog" is not on the above page anywhere, the only description that would fit is "fur-bearing animal", which is listed on the above page and copied below:

Treas. Reg. section 1.1231-2(a) states: "(3) For the purposes of section 1231, the term 'livestock' is given a broad, rather than a narrow, interpretation and includes cattle, hogs, horses, mules, donkeys, sheep, goats, fur-bearing animals, and other mammals. However, it does not include poultry, chickens, turkeys, pigeons, geese, other birds, fish, frogs, reptiles, etc."

General Livestock

IRC Section 61

Potential sources of sheep related income include locker lambs, mutton, ram rental, breeding stock, pelts and pelt products, shearing for hire, cheese from sheep milk, manure for gardens, soap and candles, special uses of wool, building sheep "furniture ", locker hooking with fleece, feltmaking with fleece, special breeds and colors, selling wool to spinners, handspun yarn and products, cottage-industry processing, livestock dog breeding, incentive payments, merchandising products, and teaching. (Simmons, 228)

Could it be that the live stock dog breeding in the above paragraph refers to the dogs that are used in farming, such are hearding dogs?

I do not think that dog breeding (especially show dogs) would be in the same catagory as livestock dog breeding because show dogs are not used for farming. There are some dogs in the hearding family that are used on farms. They benefit the farm animals as well as farmers. I suppose they make their lives a bit easier by hearding the animals, and by protecting them wolves, bears, etc.

I am currently using forms for a small business/self employed & sole proprietorships:

1040 Schedule A Schedule C Schedule SE 4562 8829

If there is a better way, i want to hear about.

Thank you,

Julie

On page 7-3 of the MSSP it states "Guardian sheep dogs may be raised by some operations as additional sources of income as well as for use with the flock." Page 7-7 it refers to Section 61 quote above from Deb.

The next section on page 7-7 regards Section 168. It states simply, "Breeding stock for sheep and goats is 5-year property for depreciation purposes." Since Section 7 is the only section where dogs are mentioned, I would presume that if "livestock breeding dogs" were 5-year property it would have been stated there as well.

Therefore, nowhere does it state that dogs are livestock. In fact, the only other place in the MSPP dogs are mentioned is on page 7-2 where it states that woven wire fences are used to contain sheep and keep dogs out.

Our son (full time college student) turned 24 in November 2005, and he is a college student. The college bill for 2005 was about $12,000. (we normally claim him, and use form 8863 Life time learning credit) We get the full $2000.00 back on our taxes, because my husband paid in a lot of taxes. And we give the money to our son to invest back into college.

Since he turned 24, from what i understand from the 1040 instructions, we cannot claim him, therefore we cannot use the 8863 form.

He has to claim himself, and use the 8863 Life Time Learning Credit form. He has made about $6000.00, so they did not hold out very much federal taxes, bottom line is that he will not receive the full amount on the 8863 Form.

So i checked to see if he could qualify for earned income credit because of such a low income, and i found out that there is a minimum age of 25.

This does not seem quite fair. Am i missing something?

Thank you,

Julie

Julie: I am leaving you credit question here, but I am also going to start a new thread. First, you will probably get more respeonses that way and secondly, we won't mix up the issues in this thread.

Here is a bit of info on live stock breeding dogs.

Guardians & Hearders

Guardian dogs watch over the live stock animals, (including sheep, goats, cattle, horses, pigs, ducks, etc)

Hearders heard up the farm animals, move from one pasture to another, from one area to another (vaccination time) They are kinda like the farmers right hand man.

Hearding Group -Australian Cattle Dog, Australian Shepherd, Bearded Collie, Belgian Malinois, Belgian Sheepdog, Border Collie, Collie, Cardigan Welsh Corgi, Pembroke Welsh Corgi, Old English Sheepdog, Shetland Sheepdog, German Shepherd Dog, and more http://www.akc.org/breeds/herding_group.cfm (these dogs can also be used at pets & show dogs, but their specific job is hearding)

The puppies or dogs who cannot make the grade of a hearding dog on a farm, should be sold as pets. They make wonderful pets.

ok back to the depreciation thing, (sorry)

BREEDING LIVESTOCK - Mature male and female animals that are used to reproduce offspring. The offspring are then sold as a product of the farm.

Is a dog an animal?

Anyway, I've always depreciated purchased breeding dogs over 7 years (since MACRS began, that is. I don't recall what I did under ACRS.)

I appreciate all of the info you have given me, especially concerning depreciation of dogs. It is hard for me to stay on the same subject, when i have so many questions.

Depreciation of dogs is what i needed help with, more than anything.

And if i could claim the puppy given to the breeder as a deduction was another. As i said, one tax consultant told me i could use the puppy as a deduction for fair market value, but she was iffy with any other questions concerning breeding, which is why i decided to do my own research.

When i read the info posted about using schedule F for dog breeding, i knew that i had to investigate this more, as i thought that i was supposes to use schedule C.

Special thanks to Deb & PGatto

Thank you for your time

God Bless,

Julie

I breed larador retrievers, which are in the sporting group. They are used as hunting dogs, guide dogs, show dogs, pets, assist dogs, rescue dogs, (in the beginning when fisherman were ice fishing, if they fell thru the ice, labs could dive in & retrieve them)they also are used as detecting cancer in patients, and many were in NY at 911 looking for people to rescue, as well as searching for bodies.

Labrador Retrievers are the # one breed because of their intelligence I breed for show, hunting, and companion dogs.

I am going to hang with PGatto concerning live stock breeding dogs vs dog breeding.

Unless the dog is used to benefit the farmer, how can the dog be used in the live stock dog breeding business!

Well, it really makes no difference, since we all have agreed to use a 7-year life for purchased dog breeders. The reason I've always used 7 years is because the IRS has no specific class for dog breeders, so I do agree with PGatto. My main point is, whether a dog breeder is considered livestock or not has no effect on how you report your sales of puppies, sales of breeders, other income, and expenses. And that's all I've been trying to stress.

1.) I just bred my first litter in 2006. However, I bought a male and a female for show/breeding in 2005. I also purchase a lot of supplies in that year to start showing and eventually breeding. Can I ammend my 05 return and claim these as expenses?

2.) I purchase a female in 2006 to show and later breed. I paid vet bills and show expenses for her and as she grew up realised she was show/breeding quality so I sold her for the same amount I paid for her. How do I put this on my tax return?

3.) The cost of the female I bought in 2005 was $2000 PLUS a puppy back. The puppy was worth $2000. Therefore, the cost of the 2005 female was $4000. Do I depreciate the $4000 over 7 years?

I hope this isn't too many questions, I'm so confused and no one seems to know how to do dog breeder tax returns.

I have another question, does any one know about the proper sales tax forms for a dog breeder? IF so, what are the procedures.

I am sure that we are to pay sales tax on the puppies sold but, how?

A tax consultant told me that was beyound his expertise. I have also heard that if puppies are sold on the internet, there are no state sales taxes. (I doubt this is true)

There is a good reason for dogs not being legally designated as livestock as has been suggested in some of the forums on this site. Depending on the state, there are humane laws governing how dogs can be housed, cared for and killed. Rarely do these humane laws extend to livestock although that is improving in some states. So please do not advocate that dogs be legally designated livestock. While this may preclude some of us from realizing the maximum depreciation for our breeding dogs, for many of us, this consideration outweighs the tax benefits. This was recently in the media in my state when a new law protecting pets went into effect but was noted that it did not extend to livestock. Just something for you all to consider.

I do thank each and every one of you for all the discussions on livestock and dog breeding tax consequences. Very helpful and informative.

I have a client that is purchasing a dog for a considerable sum. He wants to breed the dog and give away at least one of the puppies to a charity and deduct it as a gift.

First, from my understanding the puppy has no cost basis or "value" (value in the sense of a cost basis or purchase price) and therefore even if it was given away as a gift, there is nothing to be deducted as a gift.

Second, is there any way that the puppy could be condsidered a capital asset ?

Thank you in advance for your help.

Regards, RGralla

then if you go to c (raised livestock sold at a gain) it can be a long term gain if held over 12 months. Therefore can the sale then be considered a long term gain ?

Thanks again, R GRalla

John Huddleston Seattle Bellevue Tax Accountant

From what I have read I am presuming that frogs purchases for breeding can be accounted for under asset disposition with remaining depreciation expensed. Would frogs purchased for resale also be expensed if they die or included in the cost of costs sold? And frogs bread, which have no cost basis for depreciation would also have no loss from death from a tax perspective?

Frog bread. Yummm!