Economic Marketing and INFORMATION
FOR
INDIANA
FARMERS
Lafayette,  Indiana
December  21,   1951
Prepared by members of the Agricultural Staff of Purdue University
Income Tax Changes Affecting Farmers
AMONG THE CHANGES
in the Revenue Act of
195 1 is t h e regulation
covering the sale of draft,
breeding and dairy animals. It provides, for tax
years beginning after December 31, 1950, that
under certain conditions
taxpayers are allowed to
consider sales of such animals as sales of capital assets and only 50 percent of
the gain from such sales is
taxable. The conditions
are: (1) the animals must
have been owned for at
least 12 months, and (2)
the a n i m a I s must have
been held for draft, breed-
m9 or dairy purposes and
not primarily for sale in
the ordinary course of the
farm business. These new requirements replace all
previous rulings of the Bureau of Internal Revenue
concerning treatment of sales of livestock as sales of
capital assets. The new Act also states specifically
hat for tax years beginning after December 31, 1950,
sales of poultry cannot be considered as sales of
capital assets.
Retroactive Features of Revenue Act of 1951
except that the animals must have been owned for
°n|v "longer than 6 months" instead of "12 months
°r longer," the above method of reporting sales of
t, breeding and dairy animals is applicable with
jespect to all "open" taxable years beginning after
uecember 31,  1941.   "Open" years include:
All  returns for the taxable  years   1948  (until
March 15,  1952),  1949 and  1950.
 Any   year   with   respect   to   which   a   consent
element (on Form 872) is still in force.
ta   k  ^ny ^ear witn resPect to which any additional
e°,X v°s Deen paid within the past two years, provid-
84J    .taxpayer files  a  claim  for refund   (on   Form
) w'thin two years from date of payment.
by
A. M. NICHTER, Agricultural Economics
This means that a farmer who reported as ordinary income in any "open"
year the gain from sale of
animals, that would under
the new Act be considered
as the sale of a capital asset, may make an amended return and file a claim
(on  Form 843) for refund.
Capital Gains on Sale of
Residence
If the residence of the
taxpayer is sold or exchanged during 1951 at a
gain and within one year
after (or before) the sale
the taxpayer purchases
and occupies another residence, none of the gain is
taxable if the cost of the
new residence equals or
exceeds the sale price of the old residence. If the
taxpayer's farm, of which his principal residence is
a part, is sold and another residence is purchased, as
part of another farm or otherwise, the above applies
to the allocated sale and purchase prices of the residences involved.
Change in Amount of Gross Income of Dependent
A dependent who has a gross income of less than
$600 may still be claimed as an exemption. Prior to
the new Act, a dependent who had less than $500
gross income could be claimed as an exemption.
Increase in Tax Rates
Increased tax rates were effective November 1,
1951. However, the increased rates will not be applied
on the farm income earned during November and
December 1951. Instead, the farm income of the entire calendar year will be taxed at a rate to take
into account the increased rate for the last two
months. Consequently, farm income for the first 10
months and the last two months of 1951 will not
need to be separately computed.