Which of the following is correct with respect to actions Jim may take?
Jim Jaffers, a cash-basis farmer, paid $2,100 for fertilizer and lime expenses, the effects of which will last about three years. He received $1,200 for fertilizer from the USDA. His total expense for fertilizer, feed, seed, and similar items for the current year and each of the past three years has been 40% of his total farming expense.
Which of the following is correct with respect to actions Jim may take? Deduct the fertilizer and lime expense in the year the expense was paid. Capitalize the fertilizer and lime expense, and
Deduct the expense only in the year the fertilizer and lime are applied to the soil.
Deduct $900 [$2,100 expense – $1,200 USDA payment for fertilizer] in the year paid
Please provide detailed explanation.
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