A. Schedule F
Livestock held primarily for sale are reported on Schedule F as ordinary income or loss. Livestock raised or purchased with the intent to resell the animals (rather than use for draft, breeding or dairy stock) must be reported on Schedule F. Consequently, these sales proceeds increase earned income and are subject to the self-employed social security tax.

B. Form 4797
Sale proceeds from livestock held primarily for draft, breeding, dairy or sporting purposes (productive Section 1231 animals) are reported on form 4797.

Livestock held less than 1 year (2 years for horses or cattle), whether sold at gain or loss, are reported on Form 4797, Part II as ordinary gains or losses.

Raised livestock held more than 1 year (2 years for horses and cattle) and sold at a gain are reported on Form 4797, Part I and the gain is treated as capital gain. Capital gain tax rates will apply, based on the holding period for purposes of the different capital gain rates. Because of their zero tax basis to the cash method farmer, raised productive livestock cannot be sold at a loss.

Purchased productive livestock held more than 1 year (2 years for horses and cattle) and sold at a gain are reported on Form 4797, Part III, because of the need to consider Section 1245 depreciation recapture. Losses are reported in Part I as Section 1231 ordinary losses .

The purpose for which an animal is held ordinarily is determined by the actual use of the animal. An animal is not held for draft, breeding, dairy, or sporting purposes merely because it is suitable for that purpose, or because it is held for sale to others for use by them for such purposes.