Tax question for a CPA?

[fishfeeder01]

if someone gets $10 k, for a 3 year lease
to explore oil n gas. can the tax amount due
be offset by equipment upgrades? new plow,
or a welding unit for ranch upkeep?
I am not a tax person, just trying to provide advice
to a family friend.

[scott123456789]

It would depend on if the ranch is a business or hobby.

[fishfeeder01]

ran as a business. hay production, corn and
milo when it rains. rotate cattle in off season
for grazing.

[flinch]

generally yes on tax form 4562 Depreciation and Amortization on part 1 you "elect to expense certain property under section 179" so you buy $10K worth of eligible equipment to balance out the extra $10K in income you have on SCH E Supplemental income and Loss for the royalty payment. But it will only apply this extra Sec 179 depreciation if you have SCH F Farm ranch profit of $10K or more called the business income limitation. If you have a farm loss you can carry this deduction forward to hopefully a profitable year in the future.

I am not a CPA but I do have an accounting degree and do my own taxes on my ranch. I use the sec 179 deduction as often as I am eligible for a lot of years. It really helps cut profit down.

If you do not understand this (if i am clear as mud) just have them mention to their tax professional how they can utilize the "sec 179 deduction". They will know exactly what you want to do and give advice that fits your particular situation.

[999]

Essentially Section 179 let’s you take all the depreciation of equipment in the year purchased and not over the useful life of the equipment. With some limits and exclusions.

[brokeno]

Yep That's how ranchers have a loss every year and selling cheap *** calves.

[fishfeeder01]

Gents, thank you for the proper tax code references. I figured there was something out there. I know my CPA does something like that for my Lawn business, I just did not know how well that would apply to a Ranch, Business.
I still have to go out and buy more chains for my chain saw, and more blades for my mowers for this years expenses. sure wish i could claim beer as a life saving cooling fluid after mowing a yard.