Farm income arrives from many directions: crop and livestock sales, cooperatives, government programs, crop insurance, barter and payment platforms. Expenses bring their own traps, including prepaid feed, inventory, depreciation and mixed personal use. For Australian readers used to "lodging" a return, note that the IRS says "file", and the rules differ.
This guide covers who uses Schedule F, what records to gather, how to report income and expenses, and how losses flow through the return. Line references below are for tax year 2025. Always confirm them against the current year's IRS form and instructions.
Key Takeaways
- Schedule F reports farm profit or loss for an individual farming business and is filed with Form 1040.
- Your accounting method and the nature of each transaction decide where it is classified.
- Certain expenses are capitalised or limited; at-risk, passive or excess business loss rules may restrict losses.
- Reconcile entries to sales records, receipts, payroll, asset schedules and information returns before filing.
What Schedule F Is and How to Prepare
What Schedule F reports and who generally uses it
Schedule F calculates profit or loss from a farming business operated for profit. Publication 225 defines farming broadly: livestock, dairy, poultry, fish, fruit and truck farms, ranches, orchards and groves, whether you own or rent the land.
Your entity type determines which form you use:
- Schedule F: individual operators, including the individual owner of a disregarded single-member LLC.
- Other returns: partnerships (Form 1065), S corporations (Form 1120-S) and C corporations (Form 1120) report at entity level, not on the owner's Schedule F.
- Corporate election: an LLC that elects corporate tax treatment changes how it reports.
Farming not carried on for profit is not a Schedule F business. Income is generally reported on Schedule 1, and hobby expenses are not deductible.
How the form is organised
After the identifying details and principal activity code, the form has three parts:
- Part I (lines 1-9): farm income for cash-method taxpayers.
- Part II (lines 10-33): expenses for either method, with net profit or loss on line 34.
- Part III (lines 37-50): accrual-method income, including the inventory and cost-of-goods-sold calculation.
The line 34 result generally flows to Schedule 1 (line 6) and then Form 1040. It may also go to Schedule SE for self-employment tax.
Records to gather before starting
Collect these before you open the form:
- Sales invoices, settlement sheets, bank and payment records
- Forms 1099, cooperative statements and government payment forms
- Crop insurance records and livestock or crop purchase records
- Receipts, payroll information and mileage logs
- Loan statements and fixed-asset records
Keep farm and personal transactions apart. Each expense record should show the business purpose, date, amount, payee and supporting document. Books alone don't replace invoices and receipts.
VJM Global provides accounting, bookkeeping and US individual tax return support, which can help farm owners organise records before a tax professional prepares Form 1040.
Report Farm Income in Part I and Part III
Cash-method farmers report farm income in Part I. Accrual-method farmers use Part III instead, where sales, inventory and cost of goods sold follow accrual timing rather than the cash-receipt lines below.
Sales of livestock, crops and other farm products
Separate what you bought for resale from what you raised. For purchased livestock or items resold, cash-method filers report proceeds on line 1a, cost or basis on 1b and the difference on 1c. Don't deduct that same cost again as an expense.
Raised livestock and farm products (crops, grain, produce, milk, eggs, fish) go on line 2. Sales of breeding, dairy, draft or sport livestock generally belong on Form 4797, not in ordinary sales receipts.
Cooperative distributions and programme payments
Check Form 1099-PATR for patronage dividends and per-unit retains. Gross distributions go on line 3a and the taxable amount on 3b. Distributions tied to personal or capital purchases may reduce basis instead.
Agricultural programme payments go on lines 4a (gross) and 4b (taxable). Reconcile Form 1099-G against your own records, because not every payment is taxable.
CCC loans, crop insurance and disaster payments
Commodity Credit Corporation (CCC) loan proceeds are ordinarily a loan, not income. You can elect to include them in income when received (line 5a). The election statement goes with a timely return, including extensions, and applies to later loans unless the IRS permits a change.
Crop insurance and disaster payments (lines 6a-6d) are usually taxable in the year received. A cash-method farmer who normally reports over 50% of crop income in the following year can elect to defer qualifying proceeds. Price-loss-only proceeds don't qualify, and an election statement is required.
Custom work and other farm income
- Custom hire and machine work: line 7, separate from the custom-hire expense on line 13.
- Barter: report the fair market value of property or services received.
- Cancelled debt: generally income unless an exclusion applies.
- Fuel credits and refunds: report as income if they reduced a prior tax deduction.
- Other income: line 8.
A separate processing or service business may belong on Schedule C, and nonparticipating crop-share or livestock-share rentals go on Form 4835.
Reconcile income against information returns
Compare Schedule F with Forms 1099-MISC, 1099-NEC, 1099-K, 1099-G and 1099-PATR, CCC statements, processor reports and bank deposits. Don't assume each amount sits on the same line.
A missing form doesn't make receipts exempt. Cash, cheques, card payments, property and barter all count, and 1099 thresholds govern what payers report, not what you owe.
Claim Farm Expenses in Part II
Ordinary, necessary and business-related expenses
An expense must be ordinary (common and accepted) and necessary (helpful and appropriate) for the farm, with records showing the purpose. Typical categories:
- Seed, fertiliser, chemicals and feed
- Veterinary costs, supplies and fuel
- Insurance, labour, rent and repairs
- Interest, taxes, utilities and professional fees
Household costs, family-use items and fines and penalties are never deductible farm expenses.
Prepaid supplies, inventory and capitalisation
Cash-method prepaid feed, seed and fertiliser are generally capped at 50% of other deductible farm expenses. Exceptions exist for qualifying farm-related taxpayers. Prepaid feed must be a genuine purchase rather than a deposit, with a business purpose and no material distortion of income.
Inventory and production costs may need capitalising rather than expensing. Animals and plants with a preproductive period of two years or less have exceptions. Longer-period plants can require capitalisation.
Vehicles, equipment, depreciation and Section 179
Choose between actual vehicle costs and the standard mileage rate. The 2026 business rate is 72.5 cents per mile (January to June) and 76 cents (July to December). Keep contemporaneous mileage logs.
- Section 179: the 2026 maximum is $2,560,000, phasing out above $4,090,000 of qualifying property.
- Bonus depreciation: 100% applies only to qualifying property acquired and placed in service after January 19, 2025.
- De minimis safe harbour: $2,500 per invoice or item without an applicable financial statement, with an annual election.
- Repairs versus improvements: betterments, restorations and new-use adaptations generally must be capitalised.
Form 4562 is generally required for depreciation, Section 179 and listed property. Apply a business-use percentage to mixed-use assets.
Labour, insurance, interest, rent, repairs, taxes and utilities
Hired labour goes on line 22, and you can't deduct your own labour. Under 2026 Publication 15, farm cash wages generally become subject to Social Security, Medicare and income-tax withholding once an employee receives $150 in a year or total farm labour spend reaches $2,500. Reconcile payments with Forms W-2, 1099 and payroll returns.
Interest, home-related costs and shared utilities need allocation between farm and personal use, with documentation.
Less obvious deductions
- Soil and water conservation: generally capped at 25% of gross farm income.
- Reforestation: up to $10,000 per qualified timber property, with excess amortised over 84 months.
- Business meals: generally 50% deductible.
- Others: legal fees, advertising, travel, startup costs and bad debts, each with conditions.
Before claiming anything, ask whether it is deductible now, limited, depreciable, capitalised or reported elsewhere. Check the relevant IRS publication rather than relying on old thresholds.
Calculate Net Farm Profit or Loss and Complete Related Forms
Determine the result
Total farm income minus total Part II expenses gives the line 34 result. Before accepting it, review unusual negatives, capitalised costs, depreciation, inventory adjustments and reimbursements.
Transfer it to your return
The line 34 result flows to Schedule 1, line 6, then to Form 1040. Schedule SE applies when net self-employment earnings reach $400.
Self-employment tax is 15.3% (12.4% Social Security plus 2.9% Medicare) on 92.35% of net earnings. That profit or loss is combined with other income, so it affects taxable income, credits and estimated payments.
Loss limitations
A Schedule F loss isn't automatically deductible. The usual order is:
- At-risk rules (Form 6198)
- Passive activity rules (Form 8582)
- Excess business loss rules (Form 461), with a 2026 threshold of $256,000, or $512,000 for joint returns
- Net operating loss rules, where a qualifying farming loss generally has a two-year carryback unless waived
Related forms
- Schedule J: farm income averaging over the prior three years
- Form 4562 and Form 4797: depreciation and certain asset sales
- Form 4835: nonparticipating crop or livestock-share rent
- Form 4684: casualty or theft losses
- Form 8990: business interest limits (small-business exception for average gross receipts of $32M or less)
Deadlines, estimated tax and professional review
The 2025 Form 1040 was due April 15, 2026. Form 4868 extends filing by six months, not payment.
Qualifying farmers, with at least two-thirds of gross income from farming or fishing, can make one estimated payment by January 15, 2027 for tax year 2026. The alternative is to file and pay everything by March 1, 2027. See Form 1040-ES for details.
Get professional review for complex losses, major asset purchases, entity changes and special elections.
Filing Checklist and Common Errors
Final review checklist
- Confirm the tax year and taxpayer details.
- Select the activity code and accounting method.
- Enter income, then classify expenses.
- Review supporting forms and calculate profit or loss.
- Complete related schedules and attach required statements.
Then compare against last year's return. Investigate big swings in sales, expenses, inventory, depreciation, loans, insurance proceeds and government payments.
Common mistakes
- Omitting cash, card, barter, cooperative, insurance or government income
- Duplicating Form 1099 amounts or mishandling purchased livestock
- Claiming household spending as farm expense
- Missing mileage or asset records
- Treating improvements as repairs, or skipping Form 4562
- Switching accounting methods inconsistently
- Claiming losses without support
Substantiation matters. In Carson v. Commissioner (2023), the taxpayers won because the IRS focused on a rodeo activity while the disputed deductions concerned ranching. That is no licence to skip records.
Sources and disclaimer
Before filing, check the current Schedule F, its instructions, Publication 225, the Form 1040 instructions and each related form's instructions.
This article is educational, not individual tax, legal or accounting advice. A qualified professional should review complex or unusual farm tax situations.
Frequently Asked Questions
Do I have to file a tax return if my farm income is low?
The IRS filing requirement depends on filing status, age, gross income and other factors. Net self-employment earnings of $400 or more generally require a return even when other income is modest.
What can you write off on a farm?
Ordinary and necessary business costs: feed, seed, fertiliser, labour, insurance, repairs, utilities, interest, rent and depreciation. Personal, unsupported, capitalised or specially limited costs may not be immediately deductible.
What is Schedule F?
It is the Form 1040 schedule eligible taxpayers use to report farm income and expenses and calculate net farm profit or loss.
Who needs to file Schedule F with Form 1040?
Individuals running a farm as sole proprietors or disregarded single-member LLCs. Partnerships and corporations report at entity level on their own returns.
How do I report farm income and expenses on Schedule F?
Pick your accounting method, report income in Part I or III, list allowable expenses in Part II, and calculate line 34. Then carry the result to Schedule 1, Form 1040 and any related schedules.
Can I deduct a farm loss on my tax return?
Possibly, but at-risk, passive activity, excess business loss and basis rules can limit it. Review Forms 6198, 8582 and 461 where they apply.
