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You need to be running a business, and operate it with the goal of turning a profit. If it is your only job, it is pretty easy to gain assets but rarely turn a profit - big enough to be a real business, appreciating value that they can get capital gains from some day, working on a business..... As a 2nd job, the govt feels you are running a hobby, not trying to make money. They do not want you taking your salery & using it as a tax shelter to buy a bunch of cool farm tools & bit of land & have a money hole of a tax shelter. 2 out of 5 years profit & you are good to go, no questions asked. Normal farming there, your buisness is gaining like a real business should. Less than that, and hummmm, you leave yourself open for them to question your intentent. It will be up to you to prove to them that you intend to be profitable, and why you are not for these years. If you have good business records; bad weather, expansion eatring profits, crop failure, long-term livestock or specialty crop investment (mushrooms, ginseng, etc.) has prevented you from being profitable but the potential, intent, and goal is to turn a profit - then you will be ok'ed to carry on. The problem is you will be under the microscope at that point, and do you really want that with the IRS? You need to prove yourself to the satisfaction of the fellow auditing you..... This is the best explination I have heard on the net from pretty good tax folks willing to share. --->Paul
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