26 U.S.C. § 464 — Limitations on deductions for certain farming expenses

(a) General rule. If subsection (d) applies to a taxpayer^*, a deduction for money paid for feed, seed, fertilizer, or similar farm supplies is only allowed for the tax year the supplies are actually used or consumed — or, if later, whatever year it would normally be deductible.

(b) Certain poultry expenses. For a taxpayer covered by subsection (d): the cost of poultry (including egg-laying hens and baby chicks) bought for business use must be capitalized and deducted evenly over 12 months or the birds' useful life in the business, whichever is shorter; and the cost of poultry bought for resale is deducted in the year it's sold or disposed of.

(c) Exception. Rule (a) does not apply to supplies still on hand at year-end because of fire, storm, other casualty, disease, or drought.

(d) Taxpayers who prepay 50% or more of farm expenses. (1) Subsection (d) applies to a taxpayer for a year if the taxpayer does not use an accrual method, has "excess prepaid farm supplies" for the year, and is not a "qualified farm-related taxpayer." (2) A "qualified farm-related taxpayer" is a farm-related taxpayer whose prepaid farm supplies over the last three years were less than 50% of their other deductible farming expenses over that same period, or whose excess prepaid supplies this year are due to a genuine change in business caused by extraordinary circumstances. A "farm-related taxpayer" is someone whose main home is on a farm, whose main job is farming, or who is a family member (as defined in section 461(k)(2)(E)) of someone who fits either of those. (3) "Excess prepaid farm supplies" means prepaid supplies for the year that exceed 50% of the year's other deductible farming expenses. "Prepaid farm supplies" means amounts covered by subsections (a) or (b) that would otherwise be deductible in a later year. "Deductible farming expenses" means any deduction allowed under this chapter — including depreciation or amortization — that is properly tied to the trade or business^* of farming.

(e) Farming. For this section, "farming" means cultivating land, or raising or harvesting an agricultural^* or horticultural product, including raising, shearing, feeding, caring for, training, and managing animals. Trees do not count as an agricultural or horticultural product for this purpose, unless they bear fruit or nuts.