When ranchers raise their own replacement heifers, the money spent on raising those heifers cannot be expensed. Meaning, the feed that is paid for out of the ranch account is not to be deducted, as an expense, come tax time. Of course, there are many other cost related to raising heifers too. None of those cost are to be deducted as business expenses.
That does not mean that ranchers are not allowed to deduct those cost. They just cannot expense them. Expenses directly offset the revenue of the current year. All of the cost to raise heifers must be capitalized over several years. That means, the cost must be depreciated over the expected life of the cows.
WIP, Work in Process, is considered an asset and not an expense. Raising cattle is the same as WIP. When the heifers reach breeding age, they are promoted to cows, and thus out of WIP. If those heifers are sold then the basis that is expensed is the full absorption cost, or the cost of goods sold. The goods in this case being the heifers.
So, in summary, ranchers should not write off the feed to raise heifers until those heifers are sold, or depreciate those heifers when they are promoted to cows.
Brett Bickham
Clifton, TX