Income from the sale of capital assets is treated differently for tax purposes than income from the sale of grain or market livestock. Primary capital assets on the farm are land, machinery and equipment, buildings and livestock held for draft, dairy, breeding or sporting purposes.
Generally, the sale of capital assets used in the business is reported on Form 4797, Sale of Business Property. In addition, they may be eligible for capital gains treatment if they meet the appropriate holding period. If the assets are purchased and depreciable, depreciation that has been deducted and any remaining basis must be reported on the tax return. Raised breeding livestock is also reported on Form 4797, but their basis is always zero for a cash basis taxpayer. There may also be other adjustments to basis such as commissions, sale expenses, etc. associated with the sale of these assets. Other records must be maintained to determine holding period and remaining basis of each asset or group of assets.