would apply even if the future gain were long-term capital gain.
Therefore, in the initial year of production, the production costs would be deductible to the taxpayer under Section 181, but only against passive income. Any excess of the deduction (or “loss”) would carry forward and could be used to offset any ongoing income stream from the produced material. Presumably, if the produced material were sold in the same year as the costs were incurred, the deduction amount could be offset against the passive income from the gain on sale. If the produced material were sold in a subsequent tax year, the taxpayer could apply the loss carry forward from the first year against ordinary income and also be entitled to capital gain treatment of the proceeds of the sale of the produced material.
If the produced material is held for more than 1 year from the date of