Form 4835 - Active Participation in Farm Rental Income and Expenses

Form 4835 - Active Participation in Farm Rental Income and Expenses

Form 4835 is used by landowners or sub-lessors who rent out farm property and receive income based on crops or livestock produced by tenants. This form is specifically designed for those who do not materially participate in the farm’s operation or management. If you are actively involved in farming operations, you should instead use Schedule F (Form 1040).

When to Use Form 4835

• Landowners or sub-lessors who do not materially participate in farm operations.
• Income received based on crop or livestock production (not cash rent).
• Not applicable for tenants, real estate professionals, or those receiving flat cash rent — use Schedule E or Schedule F instead.
• Not for estates, trusts, partnerships, or S corporations — use Schedule E or Form 8825.

Material Participation and Active Involvement

Material participation is key to determining whether Form 4835 applies. If you materially participate in the farm’s operation or management, you must report income and expenses on Schedule F (Form 1040). For definitions and details, refer to the instructions for Schedule C (Form 1040), line G.

Reporting Farm Rental Income

• Line 1: Report income from livestock, produce, grains, and other crops based on production. This must be reported in the year you convert it into money or its equivalent.
• Lines 2a and 2b: Report distributions from cooperatives as shown on Form 1099-PATR.
• Lines 3a and 3b: Report agricultural program payments received.

Expenses and Deductions

• Enter expenses not listed on other lines in Part II (lines 30a–30g).
• If expenses must be capitalized, enter the total capitalized amount in parentheses on line 30g and label it “263A.”
• Total expenses (line 31) are calculated by subtracting capitalized expenses from the sum of lines 8 through 30f.

Net Farm Rental Income and Passive Activity Losses

• If line 7 (gross income) exceeds line 31 (total expenses), calculate net farm rental income.
• If you have prior year unallowed passive activity losses, use Form 8582 to determine how much can be claimed against current income.
• If net loss remains after applying prior losses, enter zero on line 32.

Qualified Joint Ventures

If you and your spouse each materially participated in a jointly owned farm rental business and filed a joint return, you may elect to be taxed as a qualified joint venture. This allows each spouse to claim credit for social security and Medicare earnings. For more details, visit www.irs.gov/QUV.

Passive Activity Loss Limitations

Form 4835 is used only if the activity qualifies as a rental activity under passive activity loss rules. If you have a net loss, you may need to complete Form 8582. However, if you are a real estate professional and materially participated, your loss is not subject to passive loss rules — report it on Schedule E (Form 1040), line 40.

Source:

Form 4835 - Farm Rental Income and Expenses

Form 8582 - Passive Activity Loss Limitations

Schedule F - Profit or Loss From Farming

Schedule E - Supplemental Income and Loss

Form 8825 - Information About Your Partnership or S Corporation

Disclaimer: Always verify details with official Federal or State Department of Revenue Forms and Instructions.