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TITLE 26-INTERNAL REVENUE CODE (2) Farm net loss The term "farm net loss" means the amount by which- (A) the deductions allowed or allowable by this chapter which are directly connect- ed with the carrying on of the trade or busi- ness of farming, exceed (B) the gross income derived from such trade or business. Gains and losses on the disposition of farm recapture property referred to in section 1231(a) (determined without regard to this section or section 1245(a)) shall not be taken into account. (3) Farm net Income The term "farm net income" means the amount by which the amount referred to in paragraph (2)(B) exceeds the amount re- ferred to in paragraph (2)(A). (4) Trade or business of farming (A) Horse racing In the case of a taxpayer engaged in the raising of horses, the term, "trade or busi- ness of farming" includes the racing of horses. (B) Several businesses of farming If a taxpayer is engaged in more than one trade or business of farming, all such trades and businesses shall be treated as one trade or business. (5) Potential gain The term "potential gain" means an amount equal to the excess of the fair market value of property over its adjusted basis, but limited in the case of land to the extent of the deductions allowable in respect to such land under sections 175 (relating to soil and water conservation expenditures) and 182 (re- lating to expenditures by farmers for clearing land) for the taxable year and the 4 preceding taxable years. (Added Pub. L. 91-172, title II, § 211(a), Dec. 30, 1969, 83 Stat. 566, and amended Pub. L. 92-178, title III, § 305(a), Dec. 10, 1971, 85 Stat, 524; Pub. L. 94-455, title II, § 206(a), (b)(1), (2), title XIV, § 1402(b)(1)(Z), title XIX, §§ 1901(b)(3)(K), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1535, 1732, 1793, 1834.) TAXABLE YEARs AFTER 1977 Subsec. (e)(1) of this section amended by Pub. L. 94-455, title XIV, § 1402(b)(2), Oct 4, 1976, 90 Stat. 1732, effective for taxable years beginning after Dec. 31, 1977, by sub- stituting "1 year"for "9 months". AMEND MENs 1976-Subsee. (b)(2)(E). Pub. L. 94-455, § 206(a), added subsec. (E). Subsec. (b)(3). Pub. L. 94-455, §§ 206(b)(2), 1901(b)(3)(K), 1906(b)(13)(A), struck out "or his dele- gate" following "Secretary" in subpar. (A), substituted "ordinary income" for "gain from the sale or exchange of property which is neither a capital asset nor proper- ty described in section 1231" in subpar. (B), and added provisions relating to the determination of subtrac- tions from the excess deductions account in the case of a corporation which has made or received a transfer described in subsec. (b)(5)(A)(ii). Subsee. (b)(4)(B), (C). Pub. L. 94-455, § 1906(b)(13)(A), struck out "or his delegate" following "Secretary" whereever appearing. Subsec. (b)(5)(A). Pub. L. 94-455, § 206(b)(1). desig- nated existing provisions as cl. (I), and added cl. (i). Subsec. (b)(6). Pub. L. 04-455, § 1906(b)(13)(A), struck out "or his delegate" following "Secretary". Subsec. (c). Pub. L. 94-455, § 1901(b)(3)(K), 1906(b)(13)(A), substituted in pars. (1) and (2)(A) "or- dinary income" for "gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231" and struck out in par. (2)(B) "or his delegate" following "Secretary". Subsec. (e)(1). Pub. L. 94-455, § 1402(b)(1)(Z), pro- vided that "6 months" would be changed to "9 months" for taxable years beginning in 1977. 1971-Subsee. (b)(2)(B). Pub. L. 92-178 provided that subpar. (B) shall not apply to an electing small busi- ness corporation for a taxable year if on any day of such year a shareholder of such corporation is an indi- vidual who, for his taxable year with which or within which the taxable year of the corporation ends, Is a shareholder of another electing small business corpo. ration which has a farm net loss for its taxable year ending within such taxable year of the individual and that for purposes of cl. (I), in the case of an electing small business corporation, the nonfarm adjusted gross income of the corporation shall be increased by the amount of the nonfarm adjusted gross income of that shareholder (on any day of the corporation's tax- able year) who has the highest amount of all such shareholders of nonfarm adjusted gross income for his taxable year with which or within which the taxable year of L.ie corporation ends. EFFECTIVE DATE OF 1976 AMENDMENT Section 206(b)(3) of Pub. L. 94-455 provided that: "The amendments made by this subsection Eto subsec. (b)(3), (5)(A)l shall apply to transfers occurring after December 31, 1975". Section 1402(b)(1) of Pub. L. 94-455 provided in part that the substitution of "9 months" for "6 months" in subsec. (e)(1) of this section by section 1402(b)(1)(Z) of Pub. L. 94-455 is effective with respect to taxable years beginning In 1977. Amendment of subsecs. (b)(3), (c) by section 1901(b)(3)(K) of Pub. L. 94-455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as an Effective Date of 1976 Amendment note under section 2 of this title. EFEcrliv DATE OF 1971 AMENDMENT Section 305(b) of Pub. L. 92-178 provided that: "The amendment made by this section [to rubsec. (b)(2)(B) of this section] shall apply to taxable years ending after the date of the enactment of this Act [Dec. 10, 1971]." EFFciv DATE Section 211(c) of Pub. L. 91-172 provided that: "The amendments made by this section [adding this section and amending sections 301(b), (d)(2), 312(c)(3), 341(e)(12). 453(d)(4)(B), and 751(c) of this title] shall apply to taxable years beginning after December 31, 1969." SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in sections 170, 301, 312, 341, 453, 751, 1252 of this title. § 1252. Gain from disposition of farm i,nd (a) General rule (1) Ordinary income Except as otherwise provided in this sec- tion, if farm land which the taxpayer has held for less than 10 years Is disposed of during a taxable year beginning after Decem- ber 31, 1969, the lower of- Page 715 § 1252