What is Farm Rental Income?

What is Farm Rental Income?

Farm rental income refers to income received by a property owner from leasing farmland or farm-related assets to a tenant who uses the land for agricultural production, such as growing crops or raising livestock. This type of income is distinct from typical real estate rentals and is reported differently depending on the nature of the rental arrangement and the taxpayer’s involvement.

Key Characteristics of Farm Rental Income

• Based on production: The rental income is typically tied to the crops or livestock produced by the tenant, rather than a fixed monetary payment.
• Non-participation requirement: The landlord must not materially participate in the management or operation of the farm. If they do, the income may be treated as business income instead.
• Reporting on Form 4835: Individuals who receive farm rental income based on production and do not materially participate in farm operations must report it on Form 4835 - Farm Rental Income and Expenses.

When to Use Form 4835

Form 4835 is specifically designed for reporting farm rental income and expenses when:

• You are an individual,
• You received rental income based on crops or livestock produced by the tenant,
• You did not materially participate in the management or operation of the farm.

Estates and trusts reporting farm rental income based on tenant production do not use Form 4835; instead, they report it on Schedule E (Form 1040).

Reporting on Schedule E

If you are an individual and your farm rental income is based on production, you must report it on Form 4835. However, if you receive rental income from real estate (including personal property leased with real estate), you report it on Schedule E (Form 1040), Part I, line 3.

How to Add Form 4835 in OLT Software

When filing your tax return using OLT (Online Taxes) software, you can add Form 4835 by following these steps:

1. From within your tax return (Online), click on Federal in the left menu.
2. Under the Income section, click on the "Show more" button near Rental, Royalty, Partnership, S Corp, Trust.
3. Click on "Add or Edit" next to Farm Rental Income and Expenses - Form 4835.
4. Follow the on-screen instructions to complete the form.

Additional Resources

For more detailed guidance, refer to IRS publications and forms that discuss farm income and rental reporting. These resources provide information on deductions, expenses, and eligibility criteria for reporting farm rental income correctly.

Source:
Publication 225 - Farmer's Tax Guide
Form 4835 - Farm Rental Income and Expenses
Schedule E (Form 1040) - Supplemental Income and Loss
IRS Forms, Instructions, and Publications

Disclaimer: Always verify information with official Federal or State Department of Revenue Forms and Instructions before filing your tax return.