PT will be taking a brief hiatus until Monday. Wishing you all a happy and healthy holiday season.
One quick trip down memory lane, which ties in some interesting tax provisions. When I was a teenager in central Pennsylvania, I spend summers (and sometimes Novembers and Decembers) working on my friend’s father’s Christmas tree farm. The pay was lousy (sorry, Jimmy, no offense—wait, no way in h#@! he is reading this), and we worked in the rain, snow, sweltering heat, freezing cold, etc, but it was fun because it was me, my buddy, and a few other friends working together. We would also go and trim and cut trees on other peoples’ land (with permission) who had trees planted around their primary residence and who were sort of in the business of tree farming. You would hear rumblings that this was good tax planning (no one stating this had any tax background).
Out of curiosity this year, I looked up the tax treatment of Christmas tree farms (I am a lot of fun at holiday parties). Because everything is on the internet, if you are interested, you can find out about it at timbertax.org. There actually is some fairly good tax treatment. Christmas tree farmers, unlike other farmers, are entitled to capital gains treatment on the sale of the trees if an appropriate election is made (Section 631). A fairly substantial income tax savings. And, Christmas tree farmers do not have to capitalize many expenses, and can instead take them immediately upon incurring them (Section 263A). The election under Section 631 treats gains and losses as capital losses moving forward, but that election can be made any time. Without really researching this area, it seems like it would be possible to generate ordinary losses for a number of years (until profitable—but passive loss rules do apply), and then convert to capital gain. Again, huge caveat that I did not really research this. Stealth Congressional favoritism for Christmas, or just good lobbying? Probably lobbying, but apparently the Code is not waging a war on Christmas, or at least not Christmas tree farms.
Keith, his father, and his grandson during this holiday season.
Les and Valinda looking happy but chilly.
Oh, man, I have a lot of children.
About Stephen Olsen
Great stuff, as always. Keep up the good work in 2016. Happy Holidays to Team Procedurally Taxing.
Love the fact that there are tax benefits for farmers…including those who plant, harvest and sell Christmas trees. I had the occasion to research this farming industry in the past and so happy that Congress is not the Grinch who steals Christmas for this industry.
Of course the Code makes no mention of Christmas trees. There are a few provisions regarding “ornamental” trees. Are we sure they’re not just talking bonsai?