There are special tax considerations for those in the business of farming, which must be taken into account. This publication, the third in a series of articles on taxes for farmers, focuses on rent income. The previous entries covered Recordkeeping and Accounting and Income from the Sale of Farm Products.
You should typically consider rent income you receive from the use of your farmland as rent income rather than farm income. However, if you have material participation in the farming activities conducted on your land, you must consider the rent income as farm income.
If you allow another farmer’s livestock to live on your land and you take care of the livestock, you must consider the rent income as farm income. You must record such income as Other Income on Schedule F. If you allow another farmer’s livestock to live on your land but you do not provide services related to their care, you must consider the rent income as solely rent income, not farm income. You much record such income in Part I of Schedule E of Form 1040.
If you participate materially in the running of a farm in which you receive crop shares, you must report the rent income as self-employment income. If you do not participate materially in the running of a farm in which you receive crop shares, you must report the income or loss on Form 4835 and Schedule E of Form 1040.
You should considered rent you receive in the form of crop shares as reportable income in the year in which you convert the crop shares to money or the equivalent of money. You must report this income in the year of conversion whether you use the cash or accrual method of accounting.
You must consider crop shares you receive and feed to your livestock as converted to money at the time you feed the crop shares to your livestock. You should base the value of the crop shares on the fair market value at the time you used them as feed. You can also deduct a business expense in the same amount. Even though the income and expense offset one another for the purposes of calculating gross income on Form 1040, the recording of these monies is still necessary to calculate self-employment tax properly.
You must consider crop shares you receive and give to others as a gift as converted to money when you present them as a gift. As with crop shares used to feed livestock, you must determine the value of crop shares given as a gift based on the current fair market value at the time you presented the crop shares as a gift. Even though you gave the crop share away as a gift, you must still recognize the crop shares as income.
For example, you have a tenant you farms your land and pays you rent income in the form of crop shares. The tenant paid you the crop shares owed. You give the crop shares to your children. The next year, your children sell the crop shares and receive payment. In this situation, you received rental income and gave them to your children as a gift. You must recognize income at the time you gave the crops shares to your children, based on the fair market value of the crop shares at that time.
If you have a crop-share lease arrangement, any loss may be subject to a passive loss limitation.
Who can provide additional help with my tax questions on farming?
If you have farm income and have further questions, you can contact a tax attorney to get additional help. A tax attorney who specializes in tax law pertaining to farming will be able to answer your questions and guide you through the filing of your tax return.
Complete the form on this web site or call the number located at the top of this web site to get the help you need today. The initial consultation with a tax attorney is free of charge.
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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.