Farm income includes income derived from operating a farm for profit. Farming includes cultivating, operating, or managing a farm for gain or profit, either as an owner or tenant. Farm income generally includes amounts received from the production or sale of crops, livestock, poultry, dairy products, fish, fruits, vegetables, and other agricultural commodities, as well as certain government payments and other income directly connected with farming activities.
Types of Farm Income
- Crop Sales: Income from the sale of crops, grains, fruits, vegetables, and other farm products raised for sale is farm income.
- Livestock and Livestock Products: Income from the sale of livestock, poultry, dairy products, bees, fish, and similar agricultural products raised for sale is farm income.
- Crop Shares: If you materially participate in the production or management of the farm, crop-share rental income is generally reported as farm income on Schedule F (Form 1040).
- Custom Hire (Machine Work): Income received for custom farming services, machine work, harvesting, planting, spraying, combining, or similar services performed for others as part of your farming business is generally reported as farm income on Schedule F.
- Agricultural Program Payments: Payments received under federal or state agricultural programs are generally included in farm income unless specifically excluded by law.
- Crop Insurance Proceeds: Crop insurance proceeds and certain disaster payments are generally included in farm income. Under certain circumstances, eligible crop insurance proceeds may be deferred to the following tax year.
- Commodity Credit Corporation (CCC) Transactions: Certain CCC loan forfeitures and other CCC-related income may be included in farm income under applicable IRS rules.
- Cooperative Distributions: Patronage dividends and other taxable distributions received from agricultural cooperatives may be included in farm income.
- Barter Income: If you receive property, services, or farm products in exchange for goods or services, you must generally include the fair market value of what you receive in income.
- Pasture Income: Income from providing pasture, care, feeding, or management services for livestock owned by others is generally farm income.
- Other Farm-Related Income: Other income directly connected with farming operations may also be reportable as farm income.
Exclusions from Farm Income
- Wages received as an employee are not farm business income and are generally reported as wage income.
- Cash rent received for farmland is generally reported on Schedule E (Form 1040) unless the arrangement qualifies as a farming activity under IRS rules.
- Crop-share rental income received without material participation is generally reported on Form 4835 and carried to Schedule E.
- Gains or losses from the sale of farmland, buildings, machinery, equipment, and certain livestock used for draft, breeding, dairy, or sporting purposes are generally reported under separate tax rules and are not reported as farm operating income on Schedule F.
Reporting Farm Income
- Individuals operating a farming business generally report farm income and expenses on Schedule F (Form 1040), Profit or Loss From Farming.
- Other entities report farm income on the federal income tax return applicable to their entity type, such as Form 1120, Form 1120-S, Form 1065, or Form 1041.
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.