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Elected Farm Income and Definitions

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Question
Elected Farm Income and Definitions

Answer
To figure your elected farm income, first figure your taxable income from farming or fishing.  This includes all income, gains, losses, and ductions attributable to your farming or fishing business.  If you conduct both farming and fishing businesses, you must figure your elected farm income by combining income, gains, losses, and deductions attributable to your farming and fishing businesses.
Elected farm income also includes any gain or loss from the sale or other disposition of property regularly used in your farming or fishing business for a substantial period of time.  However, if such gain or loss is realized after cessation of the farming or fishing business, the gain or loss is treated as attributable to a farming or fishing business only if the property is sold within a reasonable time after cessation of the farming or fishing business.  A sale or other disposition within one year of the cessation is considered to be within a reasonable time.
Elected farm income does not include income, gain, or loss from the sale or other disposition of land or from the sale of development rights, grazing rights, and other similar rights.
You should find your income, gains, losses, and deductions from farming or fishing reported on different tax forms, such as:
  • Form 1040, line 7, or Form 1040NR, line 8, income from wages and other compensation you received (a) as a shareholder in an S corporation engaged in a farming or fishing business or (b) as a crew member on a vessel engaged in a fishing business (see definition later);
  • Form 1040, Schedule 1,  line 21, or Form 1040NR, line 21, income from Exxon Valdez litigation;
  • Form 1040, Schedule 1,  line 27, deduction for one-half of self-employment tax, but only to the extent that deduction is attributable to your farming or fishing business;
  • Form 1040, line 10, or Form 1040NR, line 41, CCF reduction, except to the extent that any earnings (without regard to the carryback of any net operating or net capital loss) from the operation of agreement vessels in the fisheries of the United States or in the foreign or domestic commerce of the United States are not attributable to your fishing business;
  • Schedule C or C-EZ;
  • Schedule D;
  • Schedule E, Part II;
  • Schedule F;
  • Form 4797; and
  • Form 4835.
Your elected farm income is the amount of your taxable income from farming or fishing that you elect to include.  However, you do not have to include all of your taxable income from farming or fishing.  It may be to your advantage to include less than the entire amount, depending on how the amount you include affects your tax bracket for the current and prior 3 tax years.  Your elected farm income cannot exceed your taxable income.
Definitions
Farming Business.  A farming business is the trade or business of cultivating land or raising or harvesting any agricultural or horticultural commodity.  This includes:
  • Operating a nursery or sod farm;
  • Raising or harvesting of trees bearing fruits, nuts, or other crops;
  • Raising ornamental trees (but not evergreen trees that are more than 6 years old when severed from the roots);
  • Raising, shearing, feeding, caring for, training, and managing animals; and
  • Leasing land to a tenant engaged in a farming business, but only if the lease payments are (a) based on a share of the tenant's production (not a fixed amount), and (b) determined under a written agreement entered into before the tenant begins significant activities on the land
A farming business does not include:
  • Contract harvesting of an agricultural or horticultural commodity grow

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Views: 527 Created on: Jun 15, 2013
Date updated: Dec 07, 2018

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