Individuals engaged in farming report farm income and expenses on Schedule F (Form 1040). This form is used to calculate net profit or loss from farming activities conducted as a sole proprietor or through a disregarded entity (such as a single-member LLC). Partnerships file Form 1065, S corporations file Form 1120-S, and C corporations file Form 1120 to report farm income at the entity level, rather than using Schedule F.
Who Must File Schedule F?
Individuals engaged in farming as a sole proprietor.
- Single-member LLCs (disregarded entities) reporting farming activity under the owner’s Form 1040.
- Taxpayers who cultivate, operate, or manage a farm for profit, whether as owner or tenant.
- Includes farming activities such as stock, dairy, poultry, fish, fruit, truck farms, plantations, ranches, ranges, orchards, groves, and nurseries (including ornamental plants).
What Income Is Reported on Schedule F?
- Sales of farm products: Includes livestock, produce, grains, and other products raised or purchased for resale. Report fair market value of goods or services received in exchange.
- Rents (including crop shares): Report on Schedule F only if the taxpayer materially participates in the farming operation; otherwise, report on Schedule E (Form 1040).
- Agricultural program payments: Includes ARC/PLC payments, Market Facilitation Program payments, and other USDA subsidies. Report total payments on line 4a and taxable portion on line 4b.
- Custom hire (machine work): Income from operating farm equipment for others. Report on Schedule F when activity is incidental to farming operations; otherwise, it may be reported on Schedule C.
- Cancellation of debt (farm-related): Canceled business debt related to farming is generally reported on Schedule F, subject to IRC §108 exclusions and limitations. Nonbusiness cancellation of debt is reported on Schedule 1 (Form 1040), line 8.
- Commodity Credit Corporation (CCC) loans: Generally not taxable when received. Taxable only if the taxpayer elects to treat proceeds as income in the year received or when forfeited. Report on line 5a if elected.
- Crop insurance proceeds: Report on line 6a. A taxpayer may elect to defer reporting certain crop insurance proceeds to the following year if the damage occurred in 2025 and the taxpayer meets eligibility requirements.
Accounting Methods
- Cash method: Income is reported when actually or constructively received, and expenses are deducted when paid. Used by most small and mid-size farming operations completing Parts I and II of Schedule F.
- Accrual method: Income is reported when earned and expenses when incurred. Requires inventory accounting and completion of Parts II and III of Schedule F.
Important Exclusions
Do NOT report gains or losses from the sale of:
- Land
- Depreciable farm equipment
- Buildings and structures
- Livestock held for draft, breeding, sport, or dairy purposes (capital assets)
These items are generally reported on Form 4797 (Sales of Business Property) and may flow to Form 8949/Schedule D where applicable.
Source:
Publication 225: Farmer’s Tax Guide (2025)
Schedule F (Form 1040) Instructions (2025)
Disclaimer: Always verify with the current Federal or State Department of Revenue Forms and Instructions. Tax laws and forms may change annually. For complex situations, consult a CPA or tax attorney.