The basic categories deal with machinery, raised breeding livestock, purchased breeding livestock and the various holding periods. There are at least six categories needed to report the sale of capital assets, four for breeding livestock and two for machinery, equipment and buildings plus at least one expense category for marketing charges. The sale of other depreciable assets and land can also be reported in the machinery, equipment and buildings sold category since each transaction must be reported separately. By creating these categories and reporting transactions in them, the sales of capital assets to be reported on Form 4797 are separated from sales of ordinary assets to be reported on Schedule F. The following categories are the same as shown in the FARM&HOME.QIF file in the Categories and Classes chapter.
Income category for purchased livestock used for draft, dairy, breeding or sporting purposes that have met the holding period of 12 or 24 months.
LS SOLD:PBreedST
Income category for purchased livestock used for draft, dairy, breeding or sporting purposes that have not met the holding period of 12 or 24 months.
LS SOLD:RBreedLT
Income category for raised livestock used for draft, dairy, breeding or sporting purposes that have met the holding period of 12 or 24 months.
LS SOLD:RBreedST
Income category for raised livestock used for draft, dairy, breeding or sporting purposes that have not met the holding period of 12 or 24 months.
M&E&B SOLD:LT
Income category for other machinery, equipment, buildings and other capital assets used in the business that have met the holding period requirement (12 months in most cases).
M&E&B SOLD:ST
Income category for other machinery, equipment, buildings and other capital assets used in the business that have not met the holding period requirement.
MARKETING:BRDG&CAP
Expense category used to report the expenses associated with the sale of breeding livestock or other capital assets. The sale expenses associated with these capital assets are reported on Form 4797 and not on Schedule F and therefore must be kept separate to be reported correctly on the tax return.
The above income categories are only one way of setting up these categories. Another way would be to create one income category with six subcategories. The marketing expense category could also be created as a sub category of the income category. This would simplify the process of keeping track of sale expenses associated with the sale of capital assets. However, what is important is to create an income category(ies) that separates the income from the sale of capital assets used in the farm business from the sale of ordinary assets that are reported on Schedule F.