Federal Tax Form 4835 - Farm Rental Income Instructions

General Instructions for Form 4835

Purpose of form.

If you were the landowner (or sub-lessor) and did not materially participate (for self-employment tax purposes) in the operation or management of the farm, use Form 4835 to report farm rental income based on crops or livestock produced by the tenant. See chapter 12 in Pub. 225, Farmer’s Tax Guide, for the definition of material participation.

Use this form only if the activity was a rental activity for purposes of the passive activity loss limitations. See the Instructions for Form 8582, Passive Activity Loss Limitations, for the definition of “rental activity.”

If you were a tenant, use Schedule F (Form 1040) to report farm income and expenses.

If you were a landowner (or sub-lessor), report cash rent received for pasture or farmland based on a flat charge as income on Schedule E (Form 1040), Part I. Do not use this form.

If you have net income on line 32, your tax may be less if you figure it using Schedule J (Form 1040).

Note. Form 4835 is for use by individuals only. Estates and trusts must file Schedule E, Part I, to report rental income and expenses from crop and livestock shares. Partnerships and S corporations must use Form 8825 for this purpose.

Additional information. See the instructions for Schedule F and Pub. 225 for more information.

Specific Instructions

Employer ID number. You need an employer identification number (EIN) only if you had a qualified retirement plan or were required to file an employment, excise, estate, trust, partnership, or alcohol, tobacco, and firearms tax return. If you need an EIN, see the instructions for Form SS-4.

Line A. Generally, you are considered to actively participate if you participated in making management decisions or arranging for others to provide services (such as repairs) in a significant and bona fide sense. Management decisions that are relevant in this context include approving new tenants, deciding on rental terms, approving capital or repair expenditures, and other similar decisions. You do not, however, actively participate if at any time during the year your interest (including your spouse’s interest) in the activity was less than 10% (by value) of all interests in the activity.

Part I. Gross Farm Rental Income—Based on Production

Line 1. Report income you received from livestock, produce, grains, and other crops based on production. Under both the cash and the accrual methods of reporting, you must report livestock or crop share rentals received in the year you convert them into money or its equivalent.

Lines 2a and 2b. Enter on line 2a your total distributions from cooperatives as shown on Form 1099-PATR, Taxable Distributions Received From Cooperatives. On line 2b report the taxable amount. See the instructions for Schedule F, lines 5a and 5b, on page F-2.

Lines 3a and 3b. Enter on line 3a the total agricultural program payments you received. On line 3b report the taxable amount. See the instructions for Schedule F, lines 6a and 6b, on page F-3.

Lines 4a through 4c. Report the full amount of CCC loans forfeited, even if you reported the loan proceeds as income. See the instructions for Schedule F, lines 7a through 7c, on page F-3.

Lines 5a through 5d. In general, you must report crop insurance proceeds in the year you receive them. Federal crop disaster payments are treated as crop insurance proceeds. However, if you use the cash method of accounting and 2007 was the year of damage, you can elect to include certain proceeds in income for 2008. To do this, check the box on line 5c and attach a statement to your return. See Pub. 225.

Generally, if you elect to defer any eligible crop insurance proceeds, you must defer all such crop insurance proceeds (including federal crop disaster payments).

For details on how to complete lines 5a through 5d, see the instructions for Schedule F, lines 8a through 8d, on page F-3.

Line 6. Use this line to report income not shown on lines 1 through 5d. See the instructions for Schedule F, line 10, on page F-3.

Part II. Expenses—Farm Rental Property

Capitalizing costs of property. If you produced real or tangible personal property or acquired property for resale, certain expenses may have to be included in inventory costs or capitalized. These expenses include the direct costs of the property and the share of any indirect costs allocable to that property. However, these rules generally do not apply to expenses of:

  • Producing any plant that has a pre-productive period of 2 years or less,
  • Raising animals, or
  • Replanting certain crops if they were lost or damaged by reason of freezing temperatures, disease, drought, pests, or casualty.

But you may be able to currently deduct rather than capitalize the expenses of producing a plant with a preproductive period of more than 2 years. See Election to deduct certain preproductive period expenses in the instructions for Schedule F on page F-4.

How to report. Do not reduce your expenses on lines 8 through 30f by the preproductive period expenses you must capitalize. Instead, enter the total amount capitalized in parentheses on line 30g. On the line to the left of the line 30g entry space, enter “263A.”

Line 10. Expenses you paid or incurred for soil and water conservation can be deducted only if they are consistent with a conservation plan approved by the Natural Resources Conservation Service of the Department of Agriculture for the area in which your land is located. If no plan exists, your expenses must be consistent with a soil conservation plan of a comparable state agency. See the instructions for Schedule F, line 14, on page F-4.

Line 12. Enter your depreciation and section 179 expense deduction. For details, including whether you must file Form 4562, Depreciation and Amortization, see the instructions for Schedule C (Form 1040), line 13, on page C-4, and the instructions for Form 4562.

Lines 19a and 19b. The tax treatment of interest expense differs depending on its type. For example, home mortgage interest and investment interest are treated differently. You must allocate (classify) your interest expense so it is deducted on the correct line of your tax return and it gets the right tax treatment. These rules could affect how much interest you are allowed to deduct on Form 4835. See the instructions for Schedule F, lines 23a and 23b, on page F-5.

Line 22a. If you rented or leased vehicles, machinery, or equipment, enter on line 22a the business portion of your rental cost. But if you leased a vehicle for a term of 30 days or more, you may have to reduce your deduction by an inclusion amount. See Leasing a Car in Pub. 463.

Lines 30a through 30g. Enter expenses not listed on another line. See the instructions for Schedule F, lines 34a through 34f, on page F-6. If you are required to capitalize expenses, see How to report under Capitalizing costs of property.

Line 31. If you have entered capitalized preproductive expenses on line 30g, your total expenses on line 31 will equal the total of lines 8 through 30f reduced by the amount on line 30g.

Line 33. To determine your deductible loss, you may need to complete Form 8582. However, if you checked box 33b, you must complete Form 6198, At-Risk Limitations, before you complete Form 8582. See the instructions for Schedule F, line 37, on page F-7.

Do not complete Form 8582 if either of the following applies.

  • You meet all of the conditions listed under Exception for Certain Rental Real Estate Activities in the instructions for Schedule E on page E-2. Instead, enter your deductible loss on line 33c and on Schedule E, line 40.
  • You were a real estate professional (as defined in the instructions for Schedule E on page E-2) and you materially participated in the operation of this activity (under the passive loss rules). See the Instructions for Form 8582 for the definition of material participation. Your loss is not subject to the passive activity loss limitations. Instead, enter your deductible loss on line 33c and on Schedule E, line 40. Also, include the loss in the total for Schedule E, line 43.

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The average time and expenses required to complete and file this form will vary depending on individual circumstances. For the estimated averages, see the instructions for your income tax return.

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