Okay- We will be getting a few llamas at our house. We are allowed to have 2, based on the acreage and city rules. Are there any tax deductions in this for me? First, they will help in keeping the grass down, because we have to keep it cleared per city fire rules; second, I want to shear them and spin the wool, maybe even sell some wool. At what point do we qualify as a small farm, for deducting things like city water costs, etc?

You can deduct those those against the income, so if you make 10,000 a year selling the wool, then you can deduct those expenses up to the income you make.