There may be a limit on the amount you can deduct as farming business interest paid or accrued during the tax year related to your farming business, such as for farm mortgages and other farm obligations. However, a small business taxpayer is not subject to the business interest expense limitation and is not required to file Form 8990. A small business taxpayer is a taxpayer that is not a tax shelter (as defined in section 448(d)(3)) and has average annual gross receipts of $26 million or less for the 3 prior tax years under the gross receipts test of section 448(c). Gross receipts include the aggregate gross receipts from all persons treated as a single employer, such as a controlled group of corporations, commonly controlled partnerships or proprietorships, and affiliated service groups.
The gross receipts test of section 448(c) applies only to corporations and partnerships, but for purposes of the business interest limitation the gross receipts test applies to individuals as if they were corporations or partnerships. Thus, any individual with a farming trade or business operating as a sole proprietorship is subject to the gross receipts test.
ertain businesses subject to the business interest expense limitation may elect out of the limitation. Certain farming businesses and specified agricultural or horticultural cooperatives (as defined in section 199A(g)(4)) qualify to make an election not to limit business interest expenses. This is an irrevocable election. If you make this election, you are required to use the alternative depreciation system (ADS), discussed later in chapter 7, to depreciate any farming property with a recovery period of 10 years or more. Also, you are not entitled to the special depreciation allowance for that property. For an individual with more than one qualifying business, the election is made with respect to each business. If you are required to limit your business interest expense, the amount you cannot deduct for the tax year is generally carried forward to the next tax year. However, there are special rules for partnership treatment of disallowed business interest. See the Instructions for Form 8990 for more information.
Subject to the preceding rules, and assuming other limitations do not apply, you can deduct as a farm business expense interest paid or accrued during the tax year related to your farming business, such as for farm mortgages and other farm obligations.