The Mandatory Inventory Adjustment will have a significant impact on the deductibility of farm losses by farmers with large purchased inventories. The Optional Inventory Adjustment provision is available to part-time farmers as a method of averaging income. When Farm is Sold Property taxes and interest on borrowed funds to acquire property that are included in the restricted farm loss may be added to the cost base of the land for purposes of determining capital gains. The remaining restricted farm loss would be lost. In general there is no distinction between part-time and bona fide farmers in the treatment of capital gains.
Special rules apply depending on date of purchase.
Rollovers under the Income Tax Act will apply to the part-time farmer in the same way as they do to a bona fide farmer. Summary Part-time farmers are subject to restricted farm loss amounts in deducting farm losses from other sources of income. Taxpayers with no prospect of making a profit from their farming activities may not deduct farming losses from other income. Changes to the rules governing inventories and farmhouse expenses have significantly reduced the scope for claiming farm losses against other income in a particular year for both bona fide and part-time farmers. Consulting with your accounting professional can also provide further details on the topics covered in this article.