40.27 Filing Schedule F

The designation “farm” includes stock, dairy, poultry, fruit, and truck farms, plantations, ranches, and all lands used for farming operations. A fish farm where fish are specially fed and raised, and not just caught, is a farm. So too are animal breeding farms, such as mink, fox, and chinchilla farms.

A farmer who is a sole proprietor files Schedule F along with his or her Form 1040. This schedule is similar to Schedule C for sole proprietors other than farmers; it reports income and expenses related to farming activities.

The same rules for accounting, the reporting period, and for income and expenses to Schedule C apply for farmers filing Schedule F. However, there are some key exceptions designed to provide special breaks for farmers. Since most farmers report on the cash basis and use a calendar year for tax reporting, the following information is limited to these farmers.

Filing Tip

Figuring Tax on Farm Income

Farmers and commercial fisherman can use income averaging to figure the tax on their business income (22.6).

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Special income treatment. Certain types of farm-related income enjoy special tax treatment:

• Sales of livestock (including poultry) and produce can receive Section 1231 treatment. If crops are sold on a deferred payment contract, report the income when payment is received.
• Sales of livestock caused by drought, flood, or other weather conditions can be reported in the following year if you can show that the sale would not have occurred but for the weather condition and you are eligible for federal assistance because of the weather condition.
• Rents, including crop shares, are treated as rental income, rather than as farm income, and are not part of farm net income or loss.