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Tax Implications of Selling Top Breeding Bull

Andy Gustafson 11/13/2011 @ 11:00pm

After reading Jeanne Marie Laskas great article “Breeding the Perfect Bull” published in the Smithsonian Magazine, I wondered whether a 1031 tax deferred exchange would make sense when selling prize Red and Black Angus, Simmental, Charolais, Hereford, and Senegus bulls. The article is about “Donnell Brown and his fellow cowboys combining modern science with their decades of experience with cattle ranching to create the perfect specimen named Revelation.” Why would a rancher sell a top breeding bull like Revelation? Some of the reasons include genetics, age, injury and the price offered. Ranchers can take advantage of 1031 tax deferred exchanges when selling their animals and purchasing cattle of equal or greater value.

The R.A. Brown Ranch: Creating top Breeding Bulls

The R.A. Brown Ranch located near the small town of Throckmorton, in East Texas is not your average cattle ranch. Like 97 percent of U.S. cattle ranches, it is also family-owned and operated, passed down to a fifth-generation rancher in a $76 billion beef production industry comprised of about 750,000 independent “cow-calf operations” with fewer than 50 heads. The Brown ranch operates a 2,000 head farm specializing in breeding. Such ranches are known as “seed-stock providers” representing the beginning of the beef production cycle where genetics determine the qualities of filet mignon, sirloin and steak burgers.

Selling Top Breeding Bulls: Tax Implications

A top breeding bull can sell for $100,000 once their offspring are proven to be prime calves.  

What would be the tax implications of the sale? It depends upon the purchase price, the sales price, the depreciation taken and the state capital gains rate. For example, a bull calf purchased for $10,000 and held for five years, depreciation taken for each of the five years resulting in a net adjusted basis of 0. A sales price ranging from $25,000 to $100,000 and selling expenses of $3,000, the estimated tax due is:

State   Tax                           Estimated Tax
                       $25,000   $50,000   $75,000   $100,000
AL     5.00          5,400     10,400     15,400       20,400
CA    9.55           6,401     12,539     18,676      24,814
IA   8.98          6,276     12,271     18,266       24,261
MT    6.90          5,818     11,293     16,768       22,243
NE    6.84          5,805     11,265      16,725      22,149
WY   0.00          4,300      8,050       11,800      15,550

Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming do not impose a state capital gains tax.

Livestock: 1031 Exchange Benefits and Requirements

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