IRS Schedule F Form (1040) – Profit or Loss From Farming

IRS Schedule F Form – If you’re involved in agriculture, accurately reporting your farm income and expenses is crucial for tax compliance. IRS Schedule F (Form 1040), also known as Profit or Loss From Farming, is the key form used by farmers and ranchers to calculate and report their net profit or loss from farming activities. This schedule helps determine your taxable income from farming, which is then included on your individual tax return, such as Form 1040 or 1040-SR. In this comprehensive guide, we’ll break down what Schedule F is, who needs to file it, how to complete it, common deductions, potential pitfalls, and recent updates for the 2025 tax year. Whether you’re a sole proprietor raising livestock or managing a crop farm, understanding Schedule F can help you maximize deductions and avoid costly errors.

You can download the latest Schedule F form directly from the IRS website here, and the detailed instructions here.

What is IRS Schedule F (Form 1040)?

Schedule F is a tax form attached to your main tax return to report income and expenses specifically from farming operations. It calculates your net farm profit or loss, which impacts your overall taxable income and self-employment taxes. Farming, as defined by the IRS, includes activities like cultivating crops, raising livestock, dairy production, poultry farming, fish farming, orchards, vineyards, and even forestry or logging in some cases. The form distinguishes between cash and accrual accounting methods, allowing flexibility based on your business size and practices.

Unlike Schedule C (for general business profit or loss), Schedule F is tailored for agricultural businesses. It’s used by sole proprietors, partnerships, corporations, estates, and trusts engaged in farming for profit. If your farming is a hobby rather than a for-profit business, you may not qualify to use this schedule and could face limitations on deductions.

Who Needs to File Schedule F?

You should file Schedule F if you operate a farm for profit, either as an owner or tenant. This includes:

  • Sole proprietors: Individuals running a farm business alone.
  • Partnerships and LLCs: Multi-member entities taxed as partnerships.
  • Corporations, estates, and trusts: If they derive income from farming activities.
  • Qualified joint ventures (QJVs): Spouses who jointly operate a farm and both materially participate can each file a separate Schedule F instead of a partnership return.
  • Single-member LLCs: Treated as disregarded entities, these file Schedule F under the owner’s tax return.

The IRS considers you a farmer if you cultivate, operate, or manage a farm with a profit motive. Examples include crop farms, cattle ranches, orchards, and poultry operations. However, do not use Schedule F for:

  • Income from agricultural services (e.g., soil preparation or veterinary services).
  • Farm rental income if you don’t materially participate (use Form 4835 instead).
  • Sales of livestock held for draft, breeding, sport, or dairy purposes (report on Form 4797).

If your average annual gross receipts are $31 million or less (adjusted for inflation), you qualify as a small business taxpayer and can use the cash method of accounting.

How to Fill Out Schedule F? Step-by-Step

Schedule F is divided into four parts, with a header section for basic information. Use the cash method (Parts I and II) if you report income when received and expenses when paid, or the accrual method (Parts II, III, and Part I line 9) if you report when earned or incurred. Always refer to the official instructions for line-by-line guidance.

Header Section

  • Enter your name, SSN, principal crop/activity, and a six-digit code from Part IV (e.g., 111100 for oilseed and grain farming).
  • Specify your accounting method (cash or accrual).
  • Indicate if you materially participated (affects loss limitations).
  • Report if you made payments requiring Form 1099 and whether you filed them.

Part I: Farm Income – Cash Method

Report gross income here, including:

  • Sales of livestock and produce (lines 1-2).
  • Cooperative distributions (line 3).
  • Agricultural program payments (line 4).
  • CCC loans and crop insurance proceeds (lines 5-6, with options to defer).
  • Custom hire and other income (lines 7-8).
  • Total on line 9.

For accrual users, enter gross income from Part III on line 9.

Part II: Farm Expenses

Deduct ordinary and necessary expenses, such as:

  • Car and truck (line 10, using standard mileage rate of 70 cents per mile for 2025).
  • Chemicals, feed, fertilizers (lines 11, 16, 17).
  • Depreciation (line 14, including 100% bonus depreciation for qualified property placed in service after January 19, 2025).
  • Insurance, interest, labor, rent, repairs, seeds, supplies, taxes, utilities, veterinary costs (lines 20-31).
  • Other expenses (line 32).

Total expenses on line 33, then subtract from line 9 for net profit/loss on line 34. Apply at-risk rules on line 36 if applicable.

Part III: Farm Income – Accrual Method

Similar to Part I but adjusts for inventory changes (lines 45-50) to reflect income when earned.

Part IV: Principal Agricultural Activity Codes

Select the appropriate NAICS code for your primary activity.

Your net profit or loss from line 34 flows to Schedule 1 (Form 1040) and may trigger self-employment tax on Schedule SE.

Common Farm Deductions on Schedule F

Farmers can deduct a wide range of expenses to reduce taxable income:

  • Operating costs: Feed, seeds, fertilizers, fuel, and utilities.
  • Asset-related: Depreciation, repairs, and vehicle expenses.
  • Labor and benefits: Hired labor, employee benefits, and pension plans.
  • Other: Conservation expenses (limited to 25% of gross farm income), custom hire, and insurance.

Prepaid supplies are deductible only up to 50% of other deductible farm expenses under the cash method. Capitalize certain costs under section 263A unless you’re a small taxpayer.

Common Mistakes to Avoid When Filing Schedule F

  • Mixing personal and business expenses (e.g., deducting home utilities).
  • Failing to report all income sources, like government payments or bartering.
  • Not applying limits like excess business loss ($313,000 for single filers, $626,000 for joint) or passive activity losses.
  • Incorrectly handling prepayments or inventory under accrual method.
  • Neglecting to file required 1099 forms for payments over $600.
  • Misclassifying hobby activities as business (no profit motive means limited deductions).

Always keep detailed records and consult Pub. 225 for examples.

Recent Changes for the 2025 Tax Year

For 2025, key updates include:

  • Standard mileage rate increased to 70 cents per mile.
  • 100% bonus depreciation restored for qualified property after January 19, 2025.
  • Section 179 expense limit: Up to $2,500,000, phased out over $4,000,000 in assets.
  • New election for installment tax on qualified farmland sales (Form 1062).
  • Expanded disaster relief for casualty losses and drought-related livestock replacements.
  • Clarifications on QJVs and community property reporting.

Stay updated via IRS.gov, as tax laws can change.

Conclusion

Filing IRS Schedule F accurately ensures you claim all eligible deductions while complying with tax rules. If your farm shows a loss, review at-risk and passive activity rules to determine deductibility. For complex situations, consider consulting a tax professional. Download the form and instructions from the provided links, and start gathering your records early to simplify tax season. By optimizing your Schedule F filing, you can focus more on growing your farm and less on tax headaches.