7910 / Are breeding cattle depreciable?
Depreciation deductions cannot be taken for the period before property is first “placed in service,” that is, placed in a condition or state of readiness for a specified function in a business or investment.3 Thus, if the taxpayer acquires immature livestock not yet suitable for breeding, the cost cannot be depreciated until the livestock reach maturity.4
The method of determining the amount of allowable depreciation deduction depends on when the property is placed in service. Cattle placed in service after 1986 are depreciated under a modified form of the Accelerated Cost Recovery System (ACRS).
The post-1986 ACRS deduction is determined by depreciating cattle as follows: (1) over a five or seven year period using the 150 percent declining balance method, changing to the straight line method for the taxable year for which the change in methods yields a larger allowance; or (2) over a five or seven year period using the straight line method. The same method and period must be used for all cattle placed in service during the same year.5 The initial basis of the property is the basis upon acquisition (usually the cost of the property, see Q 692), reduced by the amount, if any, elected for amortization or an IRC Section 179 deduction (see Q 716). Basis is reduced each year by the amount of depreciation allowable (whether or not the deduction is actually taken).6 Alternatively, depreciation can be calculated by multiplying the unadjusted basis of the property by depreciation rates contained in Revenue Procedure 89-15.7