Opinion ID: 895835
Heading Depth: 1
Heading Rank: 2

Heading: Farm Income

Text: [¶ 8] Edwards also has a farm operation. The trial court determined Edwards' 1995 farm income was the best indicator of Edwards' future farm income for purposes of determining his child support obligation. Blore asserts the trial court misapplied the child support guidelines in computing Edwards' allowable deduction for payments on loans used to purchase depreciable farm machinery. [¶ 9] The applicable guideline is found under N.D.A.C. § 75-02-04.1-05(2): 75-02-04.1-05. Determination of net income from self-employment.       2. After adjusted gross income from self-employment is determined, all business expenses allowed for taxation purposes, but which do not require actual expenditures, such as depreciation, must be added to determine net income from self-employment. Business costs actually incurred and paid, but not expensed for internal revenue service purposes, such as principal payments on business loans (to the extent there is a net reduction in total principal obligations incurred in purchasing depreciable assets), may be deducted to determine net income from self-employment. Under this guideline, payments made on business loans for purchasing depreciable assets are deductible from adjusted gross income, but only to the extent there is a net reduction in total principal obligations for those purchases. [¶ 10] To compute this deduction for determining Edwards' 1995 farm income, the trial court found that prior to 1995 Edwards had an existing machinery loan principal balance of $33,234.09 and he incurred additional loans for machinery of $49,700 during 1995, resulting in a total loan balance for machinery purchases of $82,934.09. The court also found that during 1995 Edwards made total payments of $56,234.09 toward principal obligations of loans for depreciable assets. The record evidence of the loan amounts and when they were incurred is sparse and confusing. Having reviewed this evidence, however, we are not persuaded the trial court's findings about the loan amounts or payments are clearly erroneous. [¶ 11] Using these loan balance and payment amounts, the trial court applied the deduction under the guideline in the following manner: By subtracting [Edwards'] loan payments of $56,234.09 in 1995, from the total of machinery loans in 1995 of $82,934.09, there leaves a balance of $26,700.00 which represents the net reduction of machinery loans (most of which is a reduction of principal). We conclude the trial court misapplied the guideline. The court deducted from Edwards' farm income the outstanding balance of machinery loans remaining after subtracting Edwards' 1995 loan payments. Clearly, the guideline does not allow a deduction of the outstanding loan balance. Rather, the guideline provides for a deduction of the principal payments on loans incurred to purchase depreciable assets to the extent those payments result in a net reduction of outstanding principal. Under the trial court's application of the guideline, the smaller the loan payment made by Edwards in 1995 the larger the remaining balance and, hence, the larger the deduction from income. That is a result clearly not envisioned by the guideline. [¶ 12] Using the trial court's fact findings, Edwards incurred additional loans for machinery in 1995 totaling $49,700 and made total payments in 1995 of $56,234.09 toward the principal balance for machinery loans. Edwards' 1995 payments, therefore, resulted in a net reduction in total principal obligations of $6,534.09 ($49,700 additional loans incurred in 1995 minus $56,234.09 payments made in 1995 equals a net reduction in principal obligations of $6,534.09). We conclude the appropriate deduction under the guideline from Edwards' adjusted farm income for the net reduction in principal obligations on loans for machinery purchases is $6,534.09.