This question is difficult to answer with the information provided. In general, a raised cull cow or heifer is a capital asset, subject to the preferred capital gains rates (5% and 15%) if it has been held for the intent for use in your breeding herd and has been held for a two-year period. This means if you are in the business of selling breeding animals, you do not get the preferred rates but rather are subject to ordinary income tax rates as well as self-employment taxes. Purchased cull cows or heifers are first subject to depreciation recapture (ordinary income) and then capital gains if they are sold for more than the original purchase price. It doesn't often qualify for capital gains, but I've certainly been seeing it much more often in the last two years for cows that were purchased five or six years ago! You should be able to find all this information in the Farmer's Tax Guide (search for Pub 225 on the IRS Web site www.irs.gov). If the cows are owned by a corporation (regular C corp), there are no preferred capital gains rates, and any income is subject to the ordinary income tax rates. The other change a corporation makes is that if you are in the business of selling breeding animals, there are no self-employment taxes. From an accounting standpoint, we would recommend that the income from the sale of cull cows be placed in an income account, separate from the sale of calves, etc. designated for Cull Breeding Livestock. If you are selling a lot of both raised and purchased cull cows, two accounts would make the distinction easier at tax time. If you are keeping track of the remaining depreciation on purchased cows, after the correct income is calculated on the tax return, an entry can be made in the books to remove any remaining basis from the asset account and reduce the income recognized in the income account. In a trust situation, there may be different circumstances that may change these answers. If the breeding herd was part of the original corpus, you will have to look to the trust agreement to see what it calls for in a taxation requirement for sale of corpus in that trust. It may be taxable to the trust, or it may be taxable to the individual beneficiaries. If everything is O.K. there and everything else is normal, the same tax treatment and accounting procedures will apply to the trust as well. We don't do a ton of trust returns so I'm not as familiar with those rules as with individuals or businesses, but we know enough to keep that original trust agreement pretty close as it spells out a lot of the information needed. If you are unsure about what it says, take it to your accountant or lawyer for further clarifications.

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