Form 4835 is used by landowners (or sub-lessees) who receive farm rental income based on crops or livestock produced by tenants and who did not materially participate in the operation or management of the farm. This form is specifically for reporting income and expenses from farm rental activities that are not subject to self-employment tax. The key distinction is whether the taxpayer materially participated in the farm’s operations. If they did, they must use Schedule F (Form 1040) instead.
Material Participation and Form Selection
- Non-participating landowners: Use Form 4835 to report income based on crop or livestock shares. Material participation is defined as being involved on a regular, continuous, and substantial basis in the operations of the activity (as per IRS Publication 550).
- Participating landowners: If you materially participated in the farm’s operation, you must report income and expenses on Schedule F (Form 1040), as this activity is treated as a trade or business, not a rental.
- Spousal joint ventures: If you and your spouse each materially participated as the only members of a jointly owned farm rental business and filed a joint return, you may elect to report separately using Form 4835.
Reporting Income on Form 4835
- Part I – Gross Farm Rental Income: Report income received from livestock, produce, grains, and other crops based on production. This includes amounts converted to cash or equivalent. Line 7 totals gross farm rental income and is reported on Schedule E (Form 1040), line 42.
- Part II – Expenses: Deductible expenses include property taxes, insurance, repairs, utilities, and other costs directly related to the rental property. Personal or living expenses are not deductible. Line 32 calculates net farm rental income or loss (Line 7 minus Line 31).
Passive Activity Loss Rules
- If you have a net loss on Form 4835, you may need to complete Form 8582 to determine deductible losses under passive activity loss rules. Rental activities are generally considered passive unless you materially participate.
- If you have net income on line 32, your tax may be reduced by using Schedule J (Form 1040) to figure your tax.
Special Cases
- Cash rent for farmland: Report on Schedule E (Form 1040), Part I, not Form 4835.
- Estate/trusts or partnerships: Report farm rental income and expenses on Schedule E (Form 1040) or Form 8825, respectively.
Source:
Form 4835 (2025) - Farm Rental Income and Expenses
Publication 550 - Investment Expenses
Disclaimer: Always verify details with current Federal or State Department of Revenue Forms and Instructions. For complex situations, consult a CPA or tax attorney.