100 STAT. 2354
PUBLIC LAW 9 9 - 5 1 4 - O C T. 22, 1986
For purposes of this subparagraph, use by the taxpayer in a farming business of any supply produced in such business shall be treated as a disposition, "(B) RULE FOR DETERMINING PERIOD.—In the case of a plant grown in commercial quantities in the United States, the preproductive period for such plant if grown in the United States shall be based on the nationwide weighted average preproductive period for such plant. "(4) FARMING BUSINESS.—For purposes of this section— "(A) IN GENERAL.—The term 'farming business' means the trade or business of farming. "(B)
CERTAIN TRADES AND BUSINESSES INCLUDED.—The
term 'farming business' shall include the trade or business of"(i) operating a nursery or sod farm, or "(ii) the raising or harvesting of trees bearing fruit, nuts, or other crops, or ornamental trees. For purposes of clause (ii), an evergreen tree which is more than 6 years old at the time severed from the roots shall not be treated as an ornamental tree. "(5) CERTAIN INVENTORY VALUATION METHODS PERMITTED.—
The Secretary shall by regulations permit the taxpayer to use reasonable inventory valuation methods to compute the amount required to be capitalized under subsection (a) in the case of any plant or animal. "(0 SPECIAL RULES FOR ALLOCATION OF INTEREST TO PROPERTY PRODUCED BY THE TAXPAYER.— "(1) INTEREST CAPITAUZED ONLY IN CERTAIN CASES.—Subsec-
tion (a) shall only apply to interest costs which are— "(A) paid or incurred during the production period, and "(B) allocable to property which is described in subsection (b)(1) and which has— "(i) a long useful life, "(ii) an estimated production period exceeding 2 years, or "(iii) an estimated production period exceeding 1 year and a cost exceeding $1,000,000. "(2) ALLOCATION RULES.—
"(A) IN GENERAL.—In determining the amount of interest required to be capitalized under subsection (a) with respect to any property— "(i) interest on any indebtedness directly attributable to production expenditures with respect to such property shall be assigned to such property, and "(ii) interest on any other indebtedness shall be assigned to such property to the extent that the taxpayer's interest costs could have been reduced if production expenditures (not attributable to indebtedness described in clause (i)) had not been incurred. "(B)
EXCEPTION FOR QUALIFIED RESIDENCE INTEREST.—
Subparagraph (A) shall not apply to any qualified residence interest (within the meaning of section 163(h)). "(C) SPECIAL RULE FOR FLOW-THROUGH ENTITIES.—Except
as provided in regulations, in the case of any flow-through entity, this paragraph shall be applied first at the entity level and then at the beneficiary level.
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