Form 4835 - Sale of Livestock and Other Items Bought for Resale
Form 4835, titled "Farm Rental Income and Expenses," is used by landowners or sub-lessors who receive rental income based on crops or livestock produced by tenants. This form is specifically designed for reporting farm rental income and expenses when the landowner does not materially participate in the farm’s operation or management.
When to Use Form 4835
- Use Form 4835 if you are a landowner (or sub-lessor) who receives rental income based on livestock or crop production by a tenant.
- Do not use Form 4835 if you materially participated in the farm’s operation — in that case, use Schedule F (Form 1040).
- Also, do not use Form 4835 if you received cash rent for farmland based on a flat charge — report that on Schedule E (Form 1040), Part I.
Reporting Sales of Livestock and Items Bought for Resale
When reporting the sale of livestock or other items bought for resale, certain expenses may need to be capitalized. According to Form 4835 instructions, if you produced or acquired property for resale, expenses related to that property may need to be included in inventory costs or capitalized.
- Direct costs of the property and allocable indirect costs must be capitalized.
- These rules are detailed in the Instructions for Schedule F (Form 1040), under "Capitalizing costs of producing property and acquiring property for resale."
- On Form 4835, do not reduce expenses on lines 8 through 30f by capitalized expenses. Instead, enter the total capitalized amount in parentheses on line 30g and label it “263A.”
Important Notes
- If you have net farm rental income, you may need to complete Form 8582 to account for prior year unallowed passive activity losses.
- Depreciation and Section 179 deductions are reported on line 12. For details, refer to Chapter 7 of Publication 225 and the Instructions for Form 4562.
- Interest expenses may be limited — refer to the Instructions for Form 8990 for more information.
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 earnings and Medicare contributions.
Source:
About Form 4835 - Farm Rental Income and Expenses
About Form 8582 - Passive Activity Loss Limitations
About Form 4562 - Depreciation and Amortization
About Form 8990 - Limitations on Business Interest Deduction
About Publication 225 - Farmer’s Tax Guide
Disclaimer: Always verify information with official Federal or State Department of Revenue Forms and Instructions.