Nondeductible Expenses

You can’t deduct personal expenses and certain other items on your tax return even if they relate to your farm.

Personal, Living, and Family Expenses

You can’t deduct certain personal, living, and family expenses as business expenses. These include rent and insurance premiums paid on property used as your home; life insurance premiums on yourself or your family; the cost of maintaining cars, trucks, or horses for personal use; allowances to minor children; attorneys’ fees and legal expenses incurred in personal matters; and household expenses. Likewise, the cost of purchasing or raising produce or livestock consumed by you or your family isn’t deductible.

Other Nondeductible Items

You can’t deduct the following items on your tax return.

Loss of growing plants, produce, and crops. Losses of plants, produce, and crops raised for sale are generally not deductible. However, you may have a deductible loss on plants with a preproductive period of more than 2 years. See chapter 11 for more information.

Repayment of loans. You can’t deduct the repayment of a loan. However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. See In- terest, earlier.

Estate, inheritance, legacy, succession, and gift taxes. You can’t deduct estate, inheritance, legacy, succession, and gift taxes.

Loss of livestock. You can’t deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense.

Losses from sales or exchanges between related persons. You can’t deduct losses from sales or exchanges of property between you and certain related persons, including your spouse, brother, sister, ancestor, or lineal descendant. For more information, see chapter 2 of Pub. 544.

Cost of raising unharvested crops. You can’t deduct the cost of raising unharvested crops sold with land owned more than 1 year if

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you sell both at the same time and to the same person. Add these costs to the basis of the land to determine the gain or loss on the sale. For more information, see Section 1231 Gains and Losses in chapter 9.

Cost of unharvested crops bought with land. Capitalize the purchase price of land, including the cost allocable to unharvested crops. You can’t deduct the cost of the crops at the time of purchase. However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops.

Cost related to gifts. You can’t deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. The costs aren’t deductible in the year of the gift or any later year. For example, you can’t deduct the cost of raising cattle or the cost of planting and raising unharvested wheat on parcels of land given as a gift to your children.

Club dues and membership fees. Generally, you can’t deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions.

Exception. The following organizations won’t be treated as a club organized for business, pleasure, recreation, or other social purposes, unless one of its main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities.

• Boards of trade.

• Business leagues.

• Chambers of commerce.

• Civic or public service organizations.

• Professional associations.

• Trade associations.

• Real estate boards.

Fines and penalties. Generally, no deduction is allowed for fines and penalties paid to a government or specified nongovernmental entity for the violation of any law except:

• Amounts that constitute restitution,

• Amount paid to come into compliance with the law,

• Amounts paid or incurred as the result of certain court orders in which no government or specified non-governmental agency is a party, and

• Amounts paid or incurred for taxes due.

On or after December 22, 2017, no deduction is allowed for the restitution amount or amount paid to come into compliance with the law unless the amounts are specifically identified in the settlement agreement or court order. Also, any amount paid or incurred as reimbursement to the government for the costs of any investigation or litigation are not eligible for the exceptions and are nondeductible.

See section 162(f), as amended by the Tax Cuts and Jobs Act, section 13306.

For the deductibility of penalites for exceeding marketing quotas, see Marketing Quota Penalties , discussed earlier.