SOUTHERN JOURNAL OF AGRICULTURAL ECONOMICS DECEMBER, 1980 THE IMPACT OF CAPITAL GAINS TAX TREATMENTS ON OPTIMAL LIVESTOCK ENTERPRISE SELECTION

p. 341). Other items with special treatment in-clude sale of farm real property, unharvested Current income tax provisions bear little crops, and timber. resemblance to those enacted by the original Special tabulations by IRS from the 1970law, the Revenue Act of 1913. Because of the Sole Proprietorship Tax Model show that progressive nature of the federal income tax, a capital gains are an important source of income need for special provisions for capital gains to many farmers. Of 2.9 million returns re-was recognized. In 1921, gains from the sale or porting farm earnings, 32 percent or 935,000disposition of capital assets and certain other reported capital gains income (Woods and Sis-capital items were identified and taxed differ- son, p. 197). Not surprisingly, livestock farms ently from income from other sources. ' The file the highest number of returns with capital capital gains provisions resulted in the separa- gains (41 percent) and animal specialty farms tion of ordinary and capital gains income. (such as horse farms, mink ranches, and someGains and losses from the sale or exchange of other farms) file the lowest (17 percent). a capital asset and other capital items are Among farmers reporting capital gains, the classified as either short- or long-term, depend- ratio of capital gains to taxable income is rela-ing on the period of time the property is held. tively high for all income groups, ranging from Income from items held for less than the re- 38 to 68 percent of taxable income for most quired period is taxed as ordinary income. In- income tax classes. Except for field crops, th