Last Updated : January 14, 2009
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Form 4835

Farm Rental Income and Expenses

Purpose of the Form:

Use Form 4835 to report farm rental income based on crops or livestock produced by the tenant if you were the landowner (or sub-lessor) and did not materially participate in the operation and management of the farm.

Use this form only if the activity is a rental activity for purposes of the passive activity loss limitations. See the instructions for Form 8582, passive activity loss limitations for the definition of “rental activity”.

If you were a tenant, Use Schedule F to report farm income and expenses.

Landowners (or sub-lessors) must not use this form to report cash rent received for pasture or farmland if the amount is based on a flat charge. Report this income directly on
Schedule E.

If you net income on line 32, your tax may be less if you figure it using Schedule J.
For more information regarding details of material participation refer instructions of
Schedule F and publication 225 Farmer’s Tax Guide.

Employer ID Number:
The taxpayer needs an Employer Identification Number (EIN) only if you had a Qualified retirement plan or were required to file an employment, excise, or alcohol, tobacco, and firearms tax return. If the taxpayer needs an EIN, see instructions for Form SS-4.

General Instructions:

  • If the state in which the business is located is different from the taxpayer’s resident

State, enter the state abbreviation.

  • If you want to split your income between taxpayer and spouse, enter T for taxpayer, S for spouse, or J for Jointly.
  • Check the appropriate checkbox of “YES” or “NO” if you are a real estate professional. For conditions to be satisfied to claim as a real estate professional see instructions for schedule E.

Line A – Participation in Farm operations
Check the appropriate checkbox of “YES” or “NO” for participation in farm operations.
If you checked the NO checkbox on Line A then the next is the taxpayer is to decide as to whether the profit or loss to be treated as a passive activity.

Generally, the taxpayer is considered to be actively participated, if he participated in making management decisions or arranging for others to provide services (such as repairs) in a significant and bonafide sense. Management decisions that are relevant in this context include approving new tenants, deciding on rental terms approving capital or repair expenditures and other similar decisions. The taxpayer However is not considered to be actively participating if at any time during the year his interest in the farm activity was less than 10% (by value) of all interests in the activity.

Part I – Gross Farm Rental Income – based on production

Line 1 – Sale of livestock and other items bought for sale
Enter the Income received from the sales of livestock, produce, grains and other crops based on production. Under both the cash and accrual methods of reporting, you must report livestock or crop share rentals received in the year you convert them into money or its equivalent.

Line 2a- Coo-operative Distributions
Enter the amount of total distributions received from co-operatives for which FORM 1099-PATR is received. Include here patronage dividends, non patronage distributions, per-unit retains allocations, and redemption of non qualified notices and per-unit retain allocations. If taxpayer received property as patronage dividends, report the fair market value of the property as income. Include any cash advances from the marketing co-operative. For more details refer schedule F instructions of line 5a and line 5b.

Line 2b – Taxable amount
Enter the taxable amount of the dividends reported on line 2a. Do not include as income patronage dividends from buying personal family items, capital assets, or depreciable assets. For more details refer schedule F instructions of line 5a and line 5b.

Line 3a – Agriculture program Payments
Enter the amount of any agricultural program payments. These include: direct payments, counter–cyclical payments, price support payments, market gain from repayment of a secured CCC loan, diversion payments, cost-share payments and payments in the form of materials or services. These being government payments are generally reported on FORM 1099-G.

Line 3b – Taxable amount
On line 3b, report only the taxable amount of any agricultural program payments. For more information refer schedule F instructions of line 6a and line 6b.

Line 4a – Commodity Credit Corporation Loans
Generally, Commodity Credit Corporation (CCC) loan proceeds are not reported as income. If the taxpayer pledges part or all of their production to secure a CCC loan, they can elect to report the loan proceeds as income in the year they are received. If this election is made in a prior Year, report loan proceeds the taxpayer received in 2006 on this line. Attach a statement to your return showing details of the loans.

Line 4b – CCC Loans forfeited
Enter on this line the full amount forfeited, even if the loan proceeds were reported as income. This amount may be reported to the taxpayer on Form 1099-A.

Line 4c – Taxable amount
If the taxpayer did not elect to report the loan proceeds as income you must still include the forfeited amount on line 4c.If the taxpayer did elect to report the proceeds of the loan as income you generally will not have an amount on Line 4c.However, if the amount forfeited is different from the basis in the commodity, there may be an entry on line 4c.

For more details refer schedule F instructions of line 7a through line 7c.

Line 5a – Crop insurance Proceeds and Federal Crop Disaster payments
Generally crop insurance proceeds must be reported in the year in which they are recieved.Federal crop disaster payments are considered crop insurance proceeds. If the damage occurred in 2006, the taxpayer can elect to include certain proceeds in income for 2007. However, if you use cash method of accounting enter on this line the total crop insurance proceeds received in 2006, even if the taxpayer is electing to include in income for 2007.

If form 1099-M is received and form 1099-M line 10 (crop insurance proceeds) > 0 then set form 1099M here on line 5a.

For more details refer schedule F instructions of line 8a through line 8d.

Line 5b – Taxable amount
Enter on line 8b the taxable amount of the proceeds the taxpayer received in 2006. Do not include proceeds the taxpayer is electing to include in income for 2007.
Line 5c – Election to defer to 2007
If the taxpayer wants to defer crop insurance proceeds to income for 2007, check the checkbox and complete election explanation statement.

Line 5d – Amount deferred from last Year
Enter the amount, if any, of crop insurance proceeds the taxpayer received in 2005 and elected to include in income for 2006.

Line 6 – Other income
This line is used to report income not shown on lines 1 through 5 , such as Illegal federal irrigation subsidies, bartering income , income from cancelation  of debt, state gasoline or fuel tax refund received etc. for more information refer instructions for schedule F.

Line 7 – Gross income
This line is automatically calculated in our package. Here sum of line 1 to line 6 is done and the result is entered here.

Part II – Expenses – Farm Rental Property

Line 8 – Car and truck expenses
The taxpayer has a option either to deduct the actual expenses of running the vehicle or take the standard mileage rate .But the conditions to be satisfied for taking standard mileage rate for 2006 are:

  • Owned the vehicle and use the standard mileage rate for the first year the vehicle was placed in service , or
  • Leased the vehicle and is using the standard mileage rate for the entire lease period.

If the taxpayer deducts actual expenses:

  • Include on line 8 the business portion of expenses for gasoline, oil, repairs, insurance etc.
  • Show depreciation on line 12 and rent or lease payments on line 22a.

If the taxpayer claims any car or truck expenses, then the taxpayer must provide the information requested on form 4562, Part-V.

Line 9 – Chemicals
Enter the amount spent on chemicals for farm use.

Line 10 – Conservation expenses
Enter the amount of conservation expenses which include deductible soil and water conservation expenses. For meaning of deductible soil and water conservation expenses refer instructions of schedule F. these expenses include , but are not limited to : cost of leveling , grading and terracing , contour furrowing, construction, control and protection of diversion channels , drainage ditches, earthen dams, water courses , outlets and ponds, the eradication of brush , and plantation of windbreaks. Moreover in order to deduct these expenses they need to consistent with the conservation plan of their respective area. For more information on allowable expenses refer instructions of schedule F line 14 and publication 225

Line 11 – Custom Hire
Enter the amounts paid for custom hire or machine work. Do not include amounts paid for rental or lease of equipment that taxpayer operated by their own. Amounts for rental equipment are reported on line 22a.

Line 12 – Depreciation and Section 179 Deduction
Enter on this line depreciation of buildings, improvements, cars and trucks, machinery and other farm equipments of a permanent nature. The taxpayer cannot deduct depreciation on the home, furniture or other personal items, land, livestock bought or raised for resale, or other property in inventory.
For more information of increased depreciation and section 179 deductions refer publication 255 and publication 946 and instructions of Form 4562. Also refer instructions of schedule C for when to file Form 4562.

Line 13 – Employee benefit programs
Enter on this line contributions made to employee benefit programs that are not an incidental part of a pension or profit-sharing plan included on Line 21.
For more information refer schedule F instructions line 15.

Line 14 – Feed Purchased
If the taxpayer uses the cash method of accounting, enter on this line amount paid for the cost of feed for livestock to consume later in the year cannot be deducted unless all the following apply:

  • The payment was for the purchase of feed rather than a deposit.
  • The prepayment had a business purpose and was not made merely to avoid tax.
  • Deducting the prepayment will not materially distort the taxpayer’s income.

 If all these apply, then the taxpayer can deduct the prepaid feed otherwise not.

Line 15 – Fertilizers and lime
Enter the amount paid for fertilizer and lime for use on the farm.

Line 16 –Freight and trucking
Enter the amount paid for freight and trucking .Do not include on this line the cost of transportation incurred in purchasing the livestock held for resale as freight paid. These costs are to be added to the cost of the livestock and deducted when the livestock is sold.

Line 17- Gasoline, fuel and oil
Enter the amount paid for Gasoline, fuel and oil for farm Equipment.

Line 18 – Insurance
Enter on this line premiums paid for farm business insurance. Personal insurances for lost earnings due to sickness or disability are not deductible.

Line 19a - Mortgage Interest
If the taxpayer has a mortgage on real property used in the farming business, other than the main home, enter the amount of interest paid to banks or other financial institutions for which Form 1098 was received.
For more details, refer schedule F instructions of line 23a and line 23b.

Line 19b – Other Interest
If the interest was paid but for which Form 1098 was not received then enter such person’s name and amount paid on this line.

Line 20 – Labor hired
Enter the amount paid by taxpayer for farm labor. Do not include amounts paid for personal use. Include only amounts paid to household help to care for farm laborers. Do not include the amounts for employment credits.

Line 21 – Pensions and Profit sharing Plans
Enter the amount of contributions made to employee pension, profit sharing, or annuity plans. For more details refer instructions of schedule F line 25 and publication 560.

Line 22a – Rent or lease for vehicles, machinery and equipments
If the taxpayer rented or leased vehicles, machinery, or equipment enter the business portion of the rental cost. If the vehicle is leased for a term of 30 days or more, the deduction may be reduced by the inclusion amount. For more details refer publication 463.

Line 22b – Rent or lease -Others
Enter here amounts paid by taxpayer to rent or lease other property such as pasture or farmland.

Line 23 – Repairs and Maintenance
Deduct the cost of repairs and maintenance of farm buildings, machinery and equipment.   You can also deduct amount paid for tools of short life or minimal costs such as shovels and rakes. Do not deduct the repairs or maintenance on your home.

Line 24 – Seeds and plants purchased
Enter the amount paid for seeds and plants for farm business.

Line 25 – Storage and warehousing
Enter the amount paid by taxpayer for storage and warehousing of farm produce.

Line 26 – Supplies purchased
Enter the amount paid for farm supplies.

Line 27 – Taxes
Following taxes and licenses can be entered on this line;

  • Real estate and personal property taxes on farm business assets.
  • Licenses and regulatory fees for your trade or business paid each year to state or local governments. But some licenses, such as liquor licenses, may have to be amortized.
  • Social security and Medicare taxes paid.
  • Federal highway use tax.

Do not enter following items on this line.

  • Federal income taxes, including self-employment tax
  • Estate and gift taxes.
  • Taxes assessed to pay for improvements, such as paving and sewers.
  • Taxes on home or personal use property.
  • State and local sales taxes on property purchased for use in business. Instead, treat these taxes as part of the cost of the property.
  • State and local sales taxes imposed on the buyer that taxpayer is required to collect and pay over to state or local governments
  • Other taxes and license fees not related to taxpayer’s business.

Line 28 – Utilities
Enter on this line the amounts paid for gas, electricity, water and other utilities for business use on the farm. Do not include personal utilities. For Base Rate calculation Refer instructions of schedule F.

Line 29 – Veterinary, breeding and medicine
Enter the amount paid for medicines, veterinary charges to doctors, breeding while rearing the livestock.

Line 30 – Other Expenses
Enter all the ordinary and necessary farm expenses not deducted elsewhere on schedule F such as advertising, office supplies etc. do not include fines and penalties paid to government for violating the law.

  • At –risk loss deduction:

Any loss from this activity that was not allowed as a deduction last year because of at risk rules is treated as a deduction allocable to this activity in 2006.

  • Business start-up costs:

If the taxpayer’s business began in 2006, he or she cha elect to deduct up to $5000 for certain business start-up costs. This limit is reduced by the amount by which the taxpayer’s start-up costs exceed $50000.

  • Forestation & reforestation costs:

Reforestation costs are generally capital expenditure and so for each Qualified timber property  you can elect to expense up to $10000 (or $5000 if filing status is married filing separately) of qualifying reforestation costs paid or incurred in 2006

  • Expenses for Business use of Home:

Taxpayer can claim the expenses for business use of home, subject to some limitations. To claim this deduction, complete the Form 8829. Form more details, see the instructions for Form 8829.

  • Go –Zone clean –up costs:

The taxpayer can deduct up to 50% of any Qualified GOZONE clean –up costs paid or incurred in 2006. For more details refer instructions of scheduleF.

  • Legal and professional Fees:

Deduction of fees for tax advice related to farming business and for preparation of tax forms can be taken.

  • Travel, meals and Entertainment:

The taxpayer can deduct for farm business travel and 50% of your business meals and entertainment. For more details refer instructions for schedule F.

  • Pre-productive period expenses:

If a person had pre productive period expenses in 2006 and decided to capitalize them, he or she must enter the total of these expenses on this line.

Line 31 – Total Expenses
The package calculates the total of all expenses entered on line 8 to line 33 and enter the result here.

Line 32 – Net Farm Rental Income or (loss)
If you have a loss on this line, the amount of loss the taxpayer can deduct this year may be limited. Individuals, Estates and trusts must complete line 33 before entering the loss on line 32.

If the taxpayer checked the checkbox NO on line E then the taxpayer needs to see that his loss might be limited by the calculations on Form 8582. The checkbox For PAL indication needs to be checked if the loss refers to some passive activity.

The package enters the net profit or deductible loss on Form 1040 line 18 And schedule SE line 1. For Form 1040NR filers this amount is reported on line 19 of Form 1040NR.

Line 33 - At-risk Rules
To determine your deductible Loss, you may need to complete Form 8582.
Normally, if taxpayer has a business loss and amounts invested in the business for which taxpayer are not at risk, he/she must complete Form 6198 to figure allowable loss.

Check the box 32b if taxpayer has amounts invested in the business for which he/she is not at risk.
For more details, refer instructions of schedule F line 37.

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