Are buffalo as an investment tax deductible?

Question

I am wanting to purchase buffalo as an investment, but need to know if they are tax deductible. If they are tax deductible are they amortized or can the full purchase price be written off? The buffalo would reside on a ranch in another state and in addition to the purchase price there would be a monthly fee per head to maintain the bufflao. It would be an absentee ownership.

Answer 1

OK, let's look at this as any depreciable asset.

Purchase price:  $5,000

Accumulated depreciation:  $4,000

Book value at sale:  $1,000

Sale price:  $9,000

Taxable gain:  $8,000

Keep in mind that when you sell a depreciable asset, the accumulated depreciation is subject to recapture.  And the recapture may be  subject to capital gains tax at a HIGHER rate depending upon the asset class.  In that light, is it still a good investment?

OK, now for a reality check, if that's not enough.  You don't depreciate livestock in the classic sense although you can amortize the cost.  That may be a semantic technicality because the concepts are the same.  The cost of their care and feeding are all valid business expenses but this is a risky business; ask any rancher.  Some years you might make a killing but other years you lose your shorts and sometimes even the ranch!

If this is being presented as an investment then maybe it's legit.  But if it's being presented as a tax dodge that generates more in tax savings than your investment then it is almost certainly abusive and illegal.  The IRS is savvy to these scams and you and the operators of the scam will probably have your clocks cleaned by the IRS in the end.

Answer 2

I am of the opinion that your original cost would be considered to be an asset in much the same way that an investment in stock would be.  Hence, the term, livestock.

I would also think that the monthly fee would then be added to your original cost and when the livestock is (are) sold, your gain, either short term or long term, would then be the difference for what they were sold for and your original cost plus your monthly maintence fee.

Just out of curiosity, do you know anyone else personally who has invested in an endeavor of this nature?  What are their thoughts on this matter?

Answer 3

Are you being sold this idea by a smoothe talking salesman who is telling you about all the tax benefits or have you thought it out on your own?  Look at with the idea that income tax does not exist.  If it still makes sense--you can sell the meat for more than it costs to raise the animal--then maybe it is OK.  If you have to have some tax gimick, count on it coming back to bite you later.