Depreciate vs. Inventory
Livestock held primarily for sale by for-profit farmers must be included in inventory. However, livestock held for draft, breeding, or dairy purposes can either be included in inventory or depreciated as the farmer chooses. Both options have advantages and disadvantages, so the decision is ultimately based on whether farmers prefer a current benefit or future benefit. If farmers choose to depreciate the livestock, they will receive a current depreciation deduction. However, this will decrease the farmer's basis in the livestock and therefore increase any gain when the livestock is sold.
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