Sales of Farm Products When you sell livestock, produce, grains, or otherproducts you raised for sale or bought for resale on your farm, theentire amount you receive is ordinary income. This includes money andthe fair market value of any property or services you receive. Table 4-1 Where to report.Table 4-1 shows where to report the sale of farmproducts on your tax return. Schedule F.When you sell farm products bought for resale, your profit or lossis the difference between your basis in the item and any money plusthe fair market value of any property you receive for it. Your basisis usually your cost. See chapter 7for information on the basis ofassets. You generally report these amounts on Schedule F for the yearyou receive payment. Example.In 1999, you bought 20 feeder calves for $6,000. You sold them in2000 for $11,000. You report the $6,000 basis, the $11,000 salesprice, and the resulting $5,000 profit in Part 1 of your 2000 ScheduleF. Form 4797.Sales of livestock held for draft, breeding, dairy, or sportingpurposes may result in ordinary or capital gains or losses, dependingon the circumstances. In either case, you should always reportthese sales on Form 4797 instead of Schedule F. SeeLivestock under Ordinary or Capital Gain or Lossin chapter 10.Animals you do not hold primarily for sale areconsidered business assets of your farm. Sale by agent.If your agent sells your farm products, you must include the netproceeds from the sale in gross income for the year the agent receivespayment. This applies even if you arrange for the agent to pay you ina later year. For a discussion on the constructive receipt of income,see Cash Method under Accounting Methods inchapter 3. Sales Caused by Weather-Related Conditions If you sell more livestock, including poultry, than you normallywould in a year because of a drought, flood, or other weather-relatedcondition, you may be able to choose to postpone reporting the gainfrom selling the additional animals until the next year. You must meetall the following conditions to qualify. Your principal trade or business is farming. You use the cash method of accounting. You can show that, under your usual business practices, youwould not have sold the animals this year except for theweather-related condition. The weather-related condition caused an area to bedesignated as eligible for assistance by the federalgovernment. Sales made before the area became eligible for federal assistancequalify if the weather-related condition that caused the sale alsocaused the area to be designated as eligible for federal assistance.The designation can be made by the President, the Department ofAgriculture (or any of its agencies), or by other federal agencies. TaxTip: A weather-related sale of livestock (other than poultry) held fordraft, breeding, or dairy purposes is an involuntary conversion. Ifyou plan to replace the livestock, see Other InvoluntaryConversions in chapter 13for more information. Usual business practice.You must determine the number of animals you would have sold hadyou followed your usual business practice in the absence of theweather-related condition. Do this by considering all the facts andcircumstances, but do not take into account your sales in any earlieryear for which you chose to postpone the gain. If you have not yetestablished a usual business practice, rely on the usual businesspractices of similarly situated farmers in your general region. Connection with affected area.The livestock does not have to be raised or sold in an areaaffected by a weather-related condition for the postponement to apply.However, the sale must occur solely because of a weather-relatedcondition that affected the water, grazing, or other requirements ofthe livestock. Classes of livestock.You must make the choice separately for each generic class ofanimals--for example, hogs, sheep, and cattle. You must alsofigure separately the amount to be postponed for each class ofanimals. Do not make a separate choice solely because of an animal'sage, sex, or breed. Amount to be postponed.Follow these steps to figure the amount to be postponed for eachclass of animals. Divide the total income realized from the sale of alllivestock in the class during the tax year by the total number of suchlivestock sold. For this purpose, do not treat any postponed gain fromthe previous year as income received from the sale oflivestock. Multiply the result in (1) by the excess number of suchlivestock sold solely because of weather-related conditions. Example.You are a calendar year taxpayer and you normally sell 100 head ofbeef cattle a year. As a result of drought, you sold 135 head during2000. You realized $35,100 from the sale. On August 9, 2000, as aresult of drought, the affected area was declared a disaster areaeligible for federal assistance. The income you can choose to postponeuntil 2001 is $9,100 [($35,100 135) 35]. How to make the choice.To make the choice to postpone gain, attach a statement to your taxreturn for the year of the sale. The statement must include your nameand address and give the following information for each class oflivestock for which you choose to postpone gain. A statement that you are making a choice under section451(e) of the Internal Revenue Code. Evidence of the weather-related conditions that forced theearly sale or exchange of the livestock and the date, if known, onwhich an area was designated as eligible for assistance by the federalgovernment because of weather-related conditions. A statement explaining the relationship of the area affectedby the weather-related condition to your early sale or exchange of thelivestock. The number of animals sold in each of the 3 precedingyears. The number of animals you would have sold in the tax yearhad you followed your normal business practice. The total number of animals sold and the number sold becauseof weather-related conditions during the tax year. A computation, as described earlier, of the income to bepostponed for each class of livestock. You must file the statement and the return by the due date of thereturn, including extensions. If you timely filed your return for theyear without making the choice, you can still make the choice byfiling an amended return within six months of the due date of thereturn (excluding extensions). Attach the statement to the amendedreturn and write "FILED PURSUANT TO SECTION 301.9100-2" atthe top of the statement. File the amended return at the same addressyou filed the original return. Once you have made the choice, you canchange it only with the approval of the IRS.