Farm income includes income derived from cultivating the soil or raising agricultural commodities, such as crops, livestock, fish, fruits, and other agricultural products. It encompasses income from operating a stock, dairy, poultry, bee, fruit, or truck farm, as well as from plantations, ranches, nurseries, ranges, orchards, or oyster beds. Income from crop shares is included if the taxpayer materially participates in the production or management of the farm. Additionally, income from custom hire (machine work) performed off the farm for others is considered farm income and reported on Schedule F (Form 1040). However, farm income does not include wages received as a farm employee, income from contract grain harvesting and hauling with workers and machines furnished by the taxpayer, or gains from the sale of farmland.
Types of Farm Income
- Crop shares: If you materially participate in the production or management of the farm, crop shares received for the use of your land are considered farm income and reported on Schedule F.
- Custom hire (machine work): Income received for contract work or custom work performed off your farm for others is considered farm income and reported on Schedule F.
- Barter income: If you are paid in farm products, property, or services, you must report the fair market value of what you receive as income.
- Pasture income: If you pasture someone else’s livestock and provide care for a fee, this income is considered farm income and reported on Schedule F.
- Granting rights to remove deposits: If you grant rights to excavate and remove natural deposits from your property, the income may be treated as a sale (capital gain) or ordinary income depending on whether you retain an economic interest.
Exclusions from Farm Income
- Gains or losses from the sale of land, depreciable farm equipment, buildings, structures, or livestock held for draft, breeding, sport, or dairy purposes are not considered farm income.
- Rental income from farmland is generally reported on Schedule E unless you materially participate in farming operations.
- Wages received as a farm employee are not considered farm income.
Reporting Farm Income
- Individuals engaged in farming report farm income on Schedule F (Form 1040).
- Corporations report farm income on Form 1120..
Source:
Publication 225 - Farmer's Tax Guide (2025)
Schedule F (Form 1040) - Profit or Loss From Farming (2025)
Disclaimer: Always verify details with the current Federal or State Department of Revenue Forms and Instructions. For complex tax situations, consult a CPA or tax attorney.