2023 Instructions for Schedule F

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Department of the Treasury

Internal Revenue Service

2023 Instructions for Schedule F

Profit or Loss

From Farming

Use Schedule F (Form 1040) to report farm income and expenses. File it with Form

1040, 1040-SR, 1040-SS, 1040-NR, 1041, or 1065.

Your farming activity may subject you to state and local taxes and other require-

ments such as business licenses and fees. Check with your state and local governments

for more information.

Additional information. Pub. 225 has more information and examples to help you

complete your farm tax return. It also lists important dates that apply to farmers.

Section references are to the Internal Revenue Code unless

otherwise noted.

Future Developments

For the latest information about developments related to Sched-

ule F (Form 1040) and its instructions, such as legislation enac-

ted after they were published, go to

IRS.gov/ScheduleF.

What's New

Standard mileage rate. The business standard mileage rate is

65.5 cents a mile.

Business meals deduction. The temporary 100% deduction

for food or beverages provided by a restaurant has expired. The

business meal deduction reverts back to the previous 50% al-

lowable deduction beginning January 1, 2023. See Travel and

meals, later, for more information.

Form 1040-SS, Part III, has been replaced. For 2023,

Schedule F (Form 1040) is available to be filed with Form

1040-SS, if applicable. For additional information, see the In-

structions for Form 1040-SS.

Farmers and ranchers affected by drought may be eligible

for extension of tax relief. Farmers and ranchers forced to sell

certain livestock because of drought conditions may have more

time to replace their livestock and defer tax on any gains from

the forced sales. See IRS Tax Tip 2022-152 and IRS extends

relief to farmers and ranchers in 49 states and other areas.

Reminders

Business interest expense limitation. For tax years beginning

after 2017, your business interest expense deduction may be

limited. See Form 8990, Limitation on Business Interest Ex-

pense under Section 163(j), and its instructions for details.

Excess business loss limitation rules. The limitation on ex-

cess business losses for noncorporate taxpayers is applicable

for 2023. See Form 461, Limitation on Business Losses, and its

instructions for details on the amount of the excess business

loss limitation.

Form 7205, Energy Efficient Commercial Buildings Deduc-

tion. This form and its separate instructions are used to claim

the section 179D deduction for qualifying energy efficient

commercial building expenses.

Deduction for qualified business income. For tax years be-

ginning after 2017, you may be entitled to a deduction of up to

20% of your qualified business income from your qualified

trade or business, plus 20% of the aggregate amount of quali-

fied real estate investment trust (REIT) dividends and qualified

publicly traded partnership (PTP) income. The deduction is

subject to various limitations, such as limitations based on your

type of trade or business, your taxable income, the amount of

W-2 wages paid with respect to the trade or business, and the

unadjusted basis immediately after acquisition of qualified

property held by the trade or business.

Special rules also exist for patrons of specified agricultural

or horticultural cooperatives, including the following.

•

Distributions from a cooperative that are included in a pa-

tron's qualified business income and are identified on the Form

1099-PATR as qualified payments are subject to the patron re-

duction.

•

A cooperative's section 199A(g) deduction passed

through to a patron on the Form 1099-PATR is included in the

patron's qualified business income deduction.

You will claim the deduction for qualified business income

on Form 1040 or 1040-SR. This deduction can be taken in ad-

dition to the standard or itemized deductions. For more infor-

mation, see the Instructions for Form 1040 and Pub. 334, Tax

Guide For Small Business.

Net operating loss (NOL). An NOL can no longer be carried

back, unless the NOL is a farming loss. If you have an NOL

attributable to farming, you must carry it back to each of the 2

tax years preceding the tax year of the loss, unless you elect to

forgo the carryback. Farming businesses can elect to forgo the

carryback and carry forward the farm NOL to a later year. For

additional information on NOLs for individuals, estates and

trusts, and corporations, see Pubs. 225 and 536.

Small business taxpayers. For tax years beginning after

2017, more small business taxpayers may be eligible to use the

cash method of accounting. See Small business taxpayer.

Jan 2, 2024 Cat. No. 17152R

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General Instructions

Other Schedules and Forms You May Have

To File

•

Schedule E (Form 1040), Part I, to report rental income

from pastureland based on a flat charge, and to report farm

rental income and expenses of a trust or estate based on crops

or livestock produced by a tenant. However, report pasture

income received from taking care of someone else’s livestock

on Schedule F (Form 1040), line 8.

•

Schedule J (Form 1040) to figure your tax by averaging

your farm income over the previous 3 years. Doing so may

reduce your tax.

•

Schedule SE (Form 1040) to pay self-employment tax on

income from your farming business.

•

Form 461 to figure excess business loss.

•

Form 3800 to claim any general business credits.

•

Form 4562 to claim depreciation (including the special

allowance) on assets placed in service in 2023, to claim

amortization that began in 2023, to make an election under

section 179 to expense certain property, or to report

information on vehicles and other listed property.

•

Form 4684 to report a casualty or theft gain or loss

involving farm business property, including purchased

livestock held for draft, breeding, sport, or dairy purposes. See

Pub. 225 for more information on how to report various farm

losses, such as losses due to death of livestock or damage to

crops or other farm property.

•

Form 4797 to report sales, exchanges, or involuntary

conversions (other than from a casualty or theft) of certain farm

property. Also, use this form to report sales of livestock held

for draft, breeding, sport, or dairy purposes.

•

Form 4835 to report rental income based on crop or

livestock shares produced by a tenant if you didn't materially

participate in the management or operation of a farm. This

income isn't subject to self-employment tax. See Pub. 225.

•

Form 6198 to figure your allowable loss if you have a

business loss and you have amounts invested in the business

for which you aren't at risk.

•

Form 7205 to claim the section 179D deduction for

qualifying energy efficient commercial building.

•

Form 8300 to report cash payments over $10,000

received in a trade or business.

•

Form 8582 to figure your allowable loss from passive

activities.

•

Form 8824 to report like-kind exchanges of business or

investment property.

•

Form 8990 to figure any amount of business interest

expense that is not subject to the interest expense limitation and

to figure the amount you can carry forward. However, a small

business taxpayer is not subject to the business interest expense

limitation and is not required to file Form 8990. Also, certain

farming businesses and specified agricultural or horticultural

cooperatives can make an election not to have the limitation

apply.

•

Form 1045 to request a refund such as resulting from a

carryback loss.

Single-member limited liability company (LLC). Generally,

a single-member domestic LLC isn't treated as a separate entity

for federal income tax purposes. If you are the sole member of

a domestic LLC engaged in the business of farming, file

Schedule F (Form 1040). However, you can elect to treat a do-

mestic LLC as a corporation. See Form 8832 for details on the

election.

Heavy highway vehicle use tax. If you use certain highway

trucks, truck-trailers, tractor trailers, or buses in your farming

business, you may have to pay a federal highway motor vehicle

use tax. See the Instructions for Form 2290 to find out if you

owe this tax and go to IRS.gov/Trucker for the latest develop-

ments.

Information returns. You may have to file information re-

turns for wages paid to employees, certain payments of fees

and other nonemployee compensation, interest, rents, royalties,

real estate transactions, annuities, and pensions. For details, see

Line F, later, and the 2023 General Instructions for Certain In-

formation Returns.

If you received cash of more than $10,000 in one or more

related transactions in your farming business, you may have to

file Form 8300. For details, see Pub. 1544.

Reportable transaction disclosure statement. If you entered

into a reportable transaction in 2023, you must file Form 8886

to disclose certain information as required by Treas. Reg. sec-

tion 1.6011-4 and the Instructions for Form 8886. You may

have to pay a penalty if you are required to file Form 8886 but

don't do so. You may also have to pay interest and penalties on

any reportable transaction understatements. For more informa-

tion on reportable transactions, see the Instructions for Form

8886.

Farm Owned and Operated by Spouses

If you and your spouse jointly own and operate a farm as an

unincorporated business and share in the profits and losses, you

can file Form 1065 and be taxed as a partnership, or you each

can file Schedule F (Form 1040) as a qualified joint venture.

Qualified Joint Venture (QJV)

If you and your spouse each materially participate as the only

members of a jointly owned and operated farm, and you file a

joint return for the tax year, you can elect to be treated as a

QJV instead of a partnership. This election in most cases won't

increase the total tax owed on the joint return, but it does give

each of you credit for social security earnings on which retire-

ment benefits are based and for Medicare coverage without fil-

ing a partnership return. For an explanation of “material partic-

ipation,” see the instructions for Schedule C (Form 1040), line

G; and Line E, later.

Making the election. To make this election, you must divide

all items of income, gain, loss, deduction, and credit attributa-

ble to the farming business between you and your spouse in ac-

cordance with your respective interests in the venture. Each of

you must file a separate Schedule F (Form 1040). On each line

of your separate Schedule F (Form 1040), you must enter your

share of the applicable income, deduction, or loss. Each of you

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must also file a separate Schedule SE (Form 1040) to pay

self-employment tax, as applicable.

As long as you remain qualified, your election can't be re-

voked without IRS consent.

For more information on QJVs, go to IRS.gov/QJV.

Exception—Community Income

If you and your spouse wholly own an unincorporated farming

business as community property under the community property

laws of a state, foreign country, or U.S. possession, you can

treat your wholly owned, unincorporated business as a sole

proprietorship, instead of a partnership. Any change in your re-

porting position will be treated as a conversion of the entity.

Report your income and deductions as follows.

•

If only one spouse participates in the business, all of the

income from that business is the self-employment earnings of

the spouse who carried on the business.

•

If both spouses participate, the income and deductions are

allocated to the spouses based on their distributive shares.

•

If either or both you and your spouse are partners in a

partnership, see Pub. 541.

•

If you and your spouse elected to treat the business as a

QJV, see Qualified Joint Venture (QJV), earlier, for how to re-

port income and deductions.

States with community property laws include Arizona, Cali-

fornia, Idaho, Louisiana, Nevada, New Mexico, Texas, Wash-

ington, and Wisconsin. See Pub. 555 for more information

about community property laws.

Estimated Tax

If you had to make estimated tax payments for 2023, and you

underpaid your estimated tax, you won't be charged a penalty if

both of the following apply.

•

Your gross farming or fishing income for 2022 or 2023 is

at least two-thirds of your gross income.

•

You file your 2023 tax return and pay the tax due by

March 1, 2024.

For details and alternative ways to avoid the estimated tax

penalty, see the Instructions for Form 2210-F and chapter 15 of

Pub. 225.

Specific Instructions

Filers of Forms 1041 and 1065. Don't complete the block la-

beled “Social security number (SSN).” Instead, enter the em-

ployer identification number (EIN) issued to the estate, trust, or

partnership on line D.

Line B

On line B, enter one of the 17 principal agricultural activity co-

des listed in Part IV on page 2 of Schedule F (Form 1040). Se-

lect the code that best describes the source of most of your in-

come.

Line C

If you use the cash method, check the box for “Cash.” Com-

plete Schedule F (Form 1040), Parts I and II. In most cases, re-

port income in the year in which you actually or constructively

received it and deduct expenses in the year you paid them.

However, if the payment of an expenditure creates an intangi-

ble asset (such as a prepaid expense) having a useful life that

extends beyond the earlier of 12 months after the creation of

the benefit or the end of the next tax year, it may not be deduc-

tible or may be deductible only in part for the year of the pay-

ment. See chapter 2 of Pub. 225.

If you use the accrual method, check the box for “Accrual.”

Complete Schedule F (Form 1040), Part I, line 9; and Part II;

and Part III. Generally, report income in the year in which you

earned it and deduct expenses in the year you incurred them,

even if you didn't pay them in that year. Accrual-basis taxpay-

ers are put on a cash basis for deducting business expenses ow-

ed to a related cash-basis taxpayer. Other rules determine the

timing of deductions based on economic performance. See Pub.

538, Accounting Periods and Methods.

Farming syndicates. Farming syndicates can't use the cash

method of accounting. A farming syndicate may be a partner-

ship, an LLC, an S corporation, or any other enterprise other

than a C corporation if:

•

The interests in the business have at any time been of-

fered for sale in a way that would require registration with any

federal or state agency, or

•

More than 35% of the losses during any tax year are allo-

cable to limited partners or limited entrepreneurs. A limited

partner is one who can lose only the amount invested or re-

quired to be invested in the partnership. A limited entrepreneur

is a person who doesn't take any active part in managing the

business.

Line D

Enter on line D the EIN that was issued to you on Form SS-4.

Don't enter your SSN. Don't enter another taxpayer's EIN (for

example, from any Forms 1099-MISC that you received). If

you don't have an EIN, leave line D blank.

You need an EIN only if you have a qualified retirement

plan or are required to file employment, excise, alcohol, tobac-

co, or firearms returns, or if you are a payer of gambling win-

nings. If you need an EIN, see the Instructions for Form SS-4.

Single-member LLCs. If you are a sole owner of an LLC that

isn't treated as a separate entity for federal income tax purpo-

ses, you may have an EIN that was issued to the LLC (and in

the LLC's legal name) if you are required to file employment

tax returns and certain excise tax returns. However, you should

enter on line D only the EIN issued to you and in your

name as the sole proprietor of your farming business. If you

don't have such an EIN, leave line D blank. Don't enter on line

D the EIN issued to the LLC.

Single-member LLCs with employees. Single-member LLCs

that are disregarded as entities separate from their owners for

federal income tax purposes are required to file employment

tax returns using the LLC's name and EIN rather than the LLC

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owner's name and EIN. For more information, see the Instruc-

tions for Form SS-4.

Filers of Forms 1041 and 1065. Enter on line D the EIN is-

sued to the estate, trust, or partnership.

Line E

Material participation. For the definition of material partici-

pation for purposes of the passive activity rules, see the instruc-

tions for Schedule C (Form 1040), line G. If you meet any of

the material participation tests described in those instructions,

check the “Yes” box.

If you are a retired or disabled farmer, you are treated as

materially participating in a farming business if you materially

participated 5 or more of the 8 years preceding your retirement

or disability. Also, a surviving spouse is treated as materially

participating in a farming activity if the surviving spouse ac-

tively manages the farm and the real property used for farming

meets the estate tax rules for special valuation of farm property

passed from a qualifying decedent.

Check the “No” box if you didn't materially participate. If

you checked “No” and you have a loss from this business, see

Limit on passive losses next. If you have a profit from this

business activity but have current year losses from other pas-

sive activities or prior year unallowed passive activity losses,

see the Instructions for Form 8582.

Limit on passive losses. If you checked the “No” box and you

have a loss from this business, you may have to use Form 8582

to figure your allowable loss, if any, to enter on Schedule F

(Form 1040), line 34. In most cases, you can deduct losses

from passive activities only to the extent of income from pas-

sive activities. For details, see Pub. 925.

Note. Form 1040-SS filers, skip this line.

Line F

If you made any payments in 2023 that would require you to

file any Forms 1099, check the “Yes” box. Otherwise, check

the “No” box. See the 2023 General Instructions for Certain In-

formation Returns in Guide to Information Returns if you are

unsure whether you are required to file any Forms 1099. Also

see the separate specific instructions for each Form 1099.

Note. Form 1040-SS filers, skip this line and Line G.

Generally, you must file Form 1099-MISC or Form

1099-NEC if you paid at least $600 in rents, services,

prizes, medical and health care payments, and other

income payments. See the Guide to Information Returns in the

2023 General Instructions for Certain Information Returns

which has more information, including the due dates for the

various information returns.

TIP

Part I. Farm Income—Cash

Method

In Part I, show income received for items listed on lines 1

through 8. In most cases, include both the cash actually or con-

structively received and the fair market value (FMV) of goods

or other property received for these items. Income is construc-

tively received when it's credited to your account or set aside

for you to use.

If you received rents based on crop shares or farm produc-

tion and materially participated in the management or operation

of a farm, report these rents as income on line 2.

Sales of livestock because of weather-related conditions. If

you sold livestock because of drought, flood, or other weath-

er-related conditions, you can elect to report the income from

the sale in the year after the year of sale if all of the following

apply.

•

Your main business is farming.

•

You can show that you sold the livestock only because of

weather-related conditions.

•

Your area qualified for federal aid.

See chapter 3 of Pub. 225 for details.

Chapter 11 bankruptcy. If you were a debtor in a chapter 11

bankruptcy case during 2023, see Chapter 11 Bankruptcy Ca-

ses in the Instructions for Form 1040 (under Income) and the

Instructions for Schedule SE (Form 1040).

Forms 1099 or CCC-1099-G. If you received Forms 1099 or

CCC-1099-G showing amounts paid to you, first determine if

the amounts are to be included with farm income. Then, use the

following chart to determine where to report the income on

Schedule F (Form 1040). Include the Form 1099 or

CCC-1099-G amounts in the total amount reported on that line.

Form

Where to

report

1099-PATR ....................... Line 3a

1099-A ......................... Line 5b

1099-MISC for crop insurance ............ Line 6a

1099-G or CCC-1099-G

•

For disaster payments ............. Line 6a

•

For other agricultural program payments .. Line 4a

You may receive Form 1099-MISC for other types of in-

come. In this case, report it on whichever line best describes

the income. For example, if you receive a Form 1099-MISC for

custom farming work, include this amount on line 7. In most

cases, your business income will be in the form of cash,

checks, and debit/credit card payments. Therefore, you should

consider the amounts shown on Form 1099-K, Payment Card

and Third Party Network Transactions, along with all other

amounts received, when calculating gross receipts. (See

Understanding Your 1099-K on IRS.gov.)

Lines 3a and 3b

If you received distributions from a cooperative in 2023, you

should receive a Form 1099-PATR. On line 3a, show your total

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distributions from cooperatives. This includes patronage divi-

dends, nonpatronage distributions, per-unit retain allocations,

and redemptions of nonqualified written notices of allocation

and per-unit retain certificates.

Show patronage dividends received in cash and the dollar

amount of qualified written notices of allocation. If you re-

ceived property as patronage dividends, report the FMV of the

property as income. Include cash advances received from a

marketing cooperative. If you received per-unit retains in cash,

show the amount of cash. If you received qualified per-unit re-

tain certificates, show the stated dollar amount of the certifi-

cates.

Don't include as income on line 3b patronage dividends

from buying personal or family items, capital assets, or depre-

ciable assets. Enter these amounts on line 3a only. Because you

don't report patronage dividends from these items as income,

you must subtract the amount of the dividend from the cost or

other basis of these items.

Lines 4a and 4b

Enter on line 4a the total of the government agricultural pro-

gram payments that you received. This includes the following

amounts.

•

Price loss coverage payments.

•

Agriculture risk coverage payments.

•

Coronavirus Food Assistance Program payments.

Coronavirus Food Assistance Program payments pro-

vide direct payments to producers of eligible agricul-

tural commodities adversely affected by the COV-

ID-19 outbreak. The program helps offset sales losses and in-

creased marketing costs associated with the COVID-19 pan-

demic. Generally, a producer must have suffered a

5%-or-greater price loss over a specified time resulting from

the COVID-19 outbreak or face additional significant market-

ing costs for inventories. The payment amount is determined, in

part, by the type of commodity produced.

•

Market Facilitation Program payments.

•

Market gain from the repayment of a secured Commodity

Credit Corporation (CCC) loan for less than the original loan

amount.

•

Diversion payments.

•

Cost-share payments (sight drafts).

•

Payments in the form of materials (such as fertilizer or

lime) or services (such as grading or building dams).

These amounts are usually reported to you on Form 1099-G.

You may also receive Form CCC-1099-G from the Department

of Agriculture showing the amounts and types of payments

made to you.

On line 4b, report only the taxable amount. For example,

don't report the market gain shown on Form CCC-1099-G on

line 4b if you elected to report CCC loan proceeds as income in

the year received (see Lines 5a Through 5c). No gain results

from redemption of the commodity because you previously re-

ported the CCC loan proceeds as income. You are treated as re-

purchasing the commodity for the amount of the loan repay-

ment. However, if you didn't report the CCC loan proceeds un-

der the election, you must report the market gain on line 4b.

TIP

Lines 5a Through 5c

CCC loans. In most cases, you don't report CCC loan pro-

ceeds as income. However, if you pledge part or all of your

production to secure a CCC loan, you can elect to report the

loan proceeds as income in the year you receive them. If you

make this election (or made the election in a prior year), report

loan proceeds you received in 2023 on line 5a. Attach a state-

ment to your return showing the details of the loan(s). See

chapter 3 of Pub. 225.

Forfeited CCC loans. Include the full amount forfeited on

line 5b, even if you reported the loan proceeds as income. This

amount may be reported to you on Form 1099-A.

If you didn't elect to report the loan proceeds as income, al-

so include the forfeited amount on line 5c.

If you did elect to report the loan proceeds as income, you

generally won't have an entry on line 5c. But if the amount for-

feited is different from your basis in the commodity, you may

have an entry on line 5c.

See chapter 3 of Pub. 225 for details on the tax consequen-

ces of electing to report CCC loan proceeds as income or for-

feiting CCC loans.

Lines 6a Through 6d

In most cases, you must report crop insurance proceeds in the

year you receive them. Federal crop disaster payments are trea-

ted as crop insurance proceeds. However, if 2023 was the year

of damage, you can elect to include certain proceeds in income

for 2024. To make this election, check the box on line 6c and

attach a statement to your return. See chapter 3 of Pub. 225 for

a description of the proceeds for which an election can be made

and for what you must include in your statement.

If you elect to defer any eligible crop insurance proceeds,

you must defer all such crop insurance proceeds (including fed-

eral crop disaster payments) from a single trade or business.

Enter on line 6a the total crop insurance proceeds you re-

ceived in 2023, even if you elect to include them in income for

2024.

Enter on line 6b the taxable amount of the proceeds you re-

ceived in 2023. Don't include proceeds you elect to include in

income for 2024.

Enter on line 6d the amount, if any, of crop insurance pro-

ceeds you received in 2022 and elected to include in income

for 2023.

Line 8

Enter on line 8 income not otherwise reportable on lines 1

through 7. This includes the following types of income.

•

Illegal federal irrigation subsidies. See chapter 3 of Pub.

225.

•

Bartering income.

•

Income from cancellation of debt. In most cases, if a debt

is canceled or forgiven, you must include the canceled amount

in income. If a federal agency, financial institution, or credit

union canceled or forgave a debt you owed of $600 or more, it

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should send you a Form 1099-C, or similar statement, by Janu-

ary 31, 2024, showing the amount of debt canceled in 2023.

However, you may be able to exclude the canceled debt from

income. See Pub. 4681 for details.

•

State gasoline or fuel tax refunds you received in 2023.

•

Any amount included in income from line 3 of Form

6478, Biofuel Producer Credit.

•

Any amount included in income from line 10 of Form

8864, Biodiesel, Renewable Diesel, or Sustainable Aviation

Fuels Credit.

•

The amount of credit for federal tax paid on fuels claimed

on your 2022 Schedule 3 (Form 1040). For information on in-

cluding the credit in income, see chapter 2 of Pub. 510.

•

Any recapture of excess depreciation on any listed prop-

erty, including any section 179 expense deduction, if the busi-

ness use percentage of that property decreased to 50% or less

in 2023. Use Part IV of Form 4797 to figure the recapture. See

the instructions for Schedule C (Form 1040), line 13, for the

definition of listed property.

•

The inclusion amount on leased listed property (other

than vehicles) when the business use percentage drops to 50%

or less. See chapter 5 of Pub. 946 to figure the amount.

•

Any recapture of the deduction or credit for clean-fuel ve-

hicle refueling property or alternative fuel vehicle refueling

property used in your farming business. For details on how to

figure recapture, see section 30C(e)(5).

•

Any income from breeding fees, or fees from renting

teams, machinery, or land that isn't reported on Schedule E

(Form 1040) or Form 4835.

•

The gain or loss on the sale of commodity futures con-

tracts if the contracts were made to protect you from price

changes. These are a form of business insurance and are con-

sidered hedges. If you had a loss in a closed futures contract,

enclose the amount of the loss in parentheses.

•

The amount of any payroll tax credit taken by an employ-

er for qualified paid sick leave and qualified paid family leave

under the Families First Coronavirus Response Act (FFCRA)

and the American Rescue Plan Act of 2021 (ARP). See Form

941, lines 11b, 11d, 13c, and 13e; Form 944, lines 8b, 8d, 10d,

and 10f; or Form 943, lines 12b, 12d, 14d, and 14f. You must

include the full amount (both the refundable and nonrefundable

portions) of the credit for qualified sick and family leave wages

in gross income for the tax year that includes the last day of

any calendar quarter with respect to which a credit is allowed.

Note. A credit is available only if the leave was taken after

March 31, 2020, and before October 1, 2021, and only after the

qualified leave wages were paid, which might under certain cir-

cumstances not occur until a quarter after September 30, 2021,

including quarters during 2023. Accordingly, all lines related to

qualified sick and family leave wages remain on the employ-

ment tax returns for 2023.

For property acquired and hedging positions estab-

lished, you must clearly identify on your books and re-

cords both the hedging transaction and the item(s) or

aggregate risk being hedged.

Purchase or sales contracts aren't true hedges if they offset

losses that already occurred. If you bought or sold commodity

futures with the hope of making a profit due to favorable price

CAUTION

changes, report the profit or loss on Form 6781 instead of this

line.

Part II. Farm Expenses

Don't deduct the following.

•

Personal or living expenses (such as taxes, insurance, or

repairs on your home) that don't produce farm income.

•

Expenses of raising anything you or your family used that

would not have otherwise been deductible as an expense except

for the presence of the income-producing farm activity.

•

The value of animals you raised that died.

•

Inventory losses.

•

Personal losses.

If you were repaid for any part of an expense during the

same year, you must subtract the amount you were repaid from

the deduction.

Capitalizing costs to property produced and property ac-

quired for resale. If you produced real or tangible personal

property or acquired property for resale, you must generally

capitalize certain expenses to your inventory or other property.

These expenses include the direct costs of the property and any

indirect costs properly allocable to that property.

For tax years beginning after 2017, small business taxpay-

ers, defined later, are not required to capitalize costs under sec-

tion 263A. Section 263A generally doesn't apply to the follow-

ing expenses.

1. Producing any plant that has a preproduction period of 2

years or less.

2. Raising animals.

3. Replanting certain crops if they were lost or damaged by

reason of freezing temperatures, disease, drought, pests, or

casualty.

Exceptions (1) and (2) don't apply to tax shelters, farming

syndicates, partnerships, or corporations required to use the ac-

crual method of accounting under section 447 or 448(a)(3).

Special rules apply to exception (3) if replanting costs are

paid or incurred by a taxpayer other than the person described

in section 263A(d)(2)(A). See sections 263A(d)(2)(B) and (C)

for these different rules. Under section 263A(d)(2)(C), there is

a temporary rule for replanting costs of citrus plants that are

paid or incurred after December 22, 2017, and on or before De-

cember 22, 2027.

Small business taxpayer. A small business taxpayer is one

that has gross receipts of $29 million or less for the 3 prior tax

years and is not a tax shelter, as defined in section 448(d)(3).

See also the inflation adjustment in Rev. Proc. 2021-45 (upda-

ted annually), which increased the threshold for small business

taxpayers from $27 million to $29 million for tax years begin-

ning in 2023.

If you capitalize your expenses, don't reduce your deduc-

tions on lines 10 through 32e by the capitalized expenses. In-

stead, enter the total amount capitalized in parentheses on

line 32f (to indicate a negative amount) and enter “263A” in

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the space to the left of the total. See Preproductive period ex-

penses, later, for details.

But you may be able to currently deduct rather than capital-

ize the expenses of producing a plant with a preproductive peri-

od of more than 2 years.

Election to deduct certain preproductive period expenses.

If the preproductive period of any plant you produce is more

than 2 years, you can elect to currently deduct the expenses

rather than capitalize them. But you can't make this election for

the costs of planting or growing citrus or almond groves incur-

red before the end of the fourth tax year beginning with the tax

year you planted them in their permanent grove. You are trea-

ted as having made the election by deducting the preproductive

period expenses in the first tax year for which you can make

this election and by applying the special rules, discussed later.

In the case of a partnership or S corporation, the elec-

tion must be made by the partner, shareholder, or

member. This election can't be made by tax shelters,

farming syndicates, partnerships, or corporations required to

use the accrual method of accounting under section 447 or

448(a)(3).

Unless you obtain IRS consent, you must make this election

for the first tax year in which you engage in a farming business

involving the production of property subject to the capitaliza-

tion rules. You can't revoke this election without IRS consent.

Special rules. If you make the election to deduct prepro-

ductive expenses for plants:

•

Any gain you realize when disposing of the plants is ordi-

nary income up to the amount of the preproductive expenses

you deducted, and

•

The alternative depreciation rules apply to property

placed in service in any tax year your election is in effect.

For details, see Uniform Capitalization Rules in chapter 6 of

Pub. 225.

Prepaid farm supplies. In most cases, if you use the cash

method of accounting and your prepaid farm supplies are more

than 50% of your other deductible farm expenses, your deduc-

tion for those supplies may be limited. Prepaid farm supplies

include expenses for feed, seed, fertilizer, and similar farm sup-

plies not used or consumed during the year.

They also include the cost of poultry that would be allowa-

ble as a deduction in a later tax year if you were to:

1. Capitalize the cost of poultry bought for use in your

farming business and deduct it ratably over the lesser of 12

months or the useful life of the poultry, and

2. Deduct the cost of poultry bought for resale in the year

you sell or otherwise dispose of it.

If the limit applies, you can deduct prepaid farm supplies

that don't exceed 50% of your other deductible farm expenses

in the year of payment. You can deduct the excess only in the

year you use or consume the supplies (other than poultry,

which is deductible, as explained above). For details and ex-

ceptions to these rules, see chapter 4 of Pub. 225.

CAUTION

Whether or not this 50% limit applies, your expenses for

livestock feed paid during the year but consumed in a later year

may be subject to the rules explained in the line 16 instructions.

Line 10

You can deduct the actual expenses of operating your car or

truck or take the standard mileage rate. You must use actual ex-

penses if you used five or more vehicles simultaneously in your

farming business (such as in fleet operations). You can't use ac-

tual expenses for a leased vehicle if you previously used the

standard mileage rate for that vehicle.

You can take the standard mileage rate for 2023 only if you:

•

Owned the vehicle and used the standard mileage rate for

the first year you placed the vehicle in service, or

•

Leased the vehicle and are using the standard mileage

rate for the entire lease period.

If you take the standard mileage rate:

•

Multiply the business standard mileage rate by 65.5 cents

a mile; and

•

Add to this amount your parking fees and tolls, and enter

the total on line 10.

Don't deduct depreciation, rent or lease payments, or your

actual operating expenses.

If you deduct actual expenses:

•

Include on line 10 the business portion of expenses for

gasoline, oil, repairs, insurance, license plates, etc.; and

•

Show depreciation on line 14 and rent or lease payments

on line 24a.

If you claim any car or truck expenses (actual or the stand-

ard mileage rate), you must provide the information requested

on Form 4562, Part V. Be sure to attach Form 4562 to your re-

turn.

For details, see chapter 4 of Pub. 463.

Line 12

Deductible conservation expenses are generally those that are

paid to conserve soil and water for land used in farming, to pre-

vent erosion of land used for farming, or for endangered spe-

cies recovery. These expenses include (but aren't limited to)

costs for the following.

•

The treatment or movement of earth, such as leveling,

grading, conditioning, terracing, contour furrowing, and the re-

storation of soil fertility.

•

The construction, control, and protection of diversion

channels, drainage ditches, irrigation ditches, earthen dams,

watercourses, outlets, and ponds.

•

The eradication of brush.

•

The planting of windbreaks.

•

The achievement of site-specific management actions

recommended in recovery plans approved pursuant to the En-

dangered Species Act of 1973.

These expenses can be deducted only if they're consistent

with a conservation plan approved by the Natural Resources

Conservation Service of the Department of Agriculture or a re-

covery plan approved pursuant to the Endangered Species Act

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of 1973 for the area in which your land is located. If no plan

exists, the expenses must be consistent with a plan of a compa-

rable state agency. You can't deduct the expenses if they were

paid or incurred for land used in farming in a foreign country.

Don't deduct expenses you paid or incurred to drain or fill

wetlands, or to prepare land for center pivot irrigation systems.

Your deduction can't exceed 25% of your gross income from

farming (excluding certain gains from selling assets such as

farm machinery and land). If your conservation expenses are

more than the limit, the excess can be carried forward and de-

ducted in later tax years. However, the amount deductible for

any 1 year can't exceed the 25% gross income limit for that

year.

For details, see chapter 5 of Pub. 225.

Line 13

Enter amounts paid for custom hire or machine work (the ma-

chine operator furnished the equipment).

Don't include amounts paid for rental or lease of equipment

you operated yourself. Instead, report those amounts on

line 24a.

Line 14

You can deduct depreciation of buildings, improvements, cars

and trucks, machinery, and other farm equipment of a perma-

nent nature.

Don't deduct depreciation of your home, furniture or other

personal items, land, livestock you bought or raised for resale,

or other property in your inventory.

You can also elect under section 179 to expense a portion of

the cost of certain property you bought in 2023 for use in your

farming business. The section 179 election is made on Form

4562.

Special depreciation allowance. For certain trees and vines

bearing fruits and nuts, planted or grafted after September 27,

2017, and before January 1, 2027, you may elect to claim the

special depreciation allowance at the time they were planted or

grafted. Additional property placed in service in 2023 may

qualify for the special depreciation allowance. See the Instruc-

tions for Form 4562 for more information.

Electing farming business. If you made an election not to

have the business interest expense limitation apply, any proper-

ty with a recovery period of 10 years or more held by you must

be depreciated under the alternative depreciation system. For

details, see Rev. Proc. 2019-08, available at IRS.gov/irb/

2019-03_IRB#RP-2019-08 (or its successor).

For information about depreciation and the section 179 de-

duction, see Pub. 946 and chapter 7 of Pub. 225. For details on

the special depreciation allowance, see chapter 3 of Pub. 946.

See the Instructions for Form 4562 for information on when

you must complete and attach Form 4562.

Line 15

Deduct contributions to employee benefit programs that aren't

an incidental part of a pension or profit-sharing plan included

on line 23. Examples are accident and health plans, group-term

life insurance, and dependent care assistance programs. If you

made contributions on your behalf as a self-employed person to

a dependent care assistance program, complete Form 2441,

Parts I and III, to figure your deductible contributions to that

program.

Contributions you made on your behalf as a self-employed

person to an accident and health plan or for group-term life in-

surance aren't deductible on Schedule F (Form 1040). Howev-

er, you may be able to deduct on Schedule 1 (Form 1040),

line 17, the amount you paid for health insurance on behalf of

yourself, your spouse, and your dependent(s) even if you don't

itemize your deductions. See the instructions for Schedule 1

(Form 1040), line 17, for details.

You must reduce your line 15 deduction by the amount of

any credit for small employer health insurance premiums deter-

mined on Form 8941. See Form 8941 and its instructions to de-

termine which expenses are eligible for the credit.

Line 16

If you use the cash method, you can't deduct when paid the cost

of feed your livestock will consume in a later year unless all of

the following apply.

•

The payment was for the purchase of feed rather than a

deposit.

•

The prepayment had a business purpose and wasn't made

merely to avoid tax.

•

Deducting the prepayment won't materially distort your

income.

If all of the above apply, you can deduct the prepaid feed

when paid, subject to the overall limit for Prepaid farm sup-

plies, explained earlier. If all of the above don’t apply, you can

deduct the prepaid feed only in the year it's consumed.

Line 18

Don't include the cost of transportation incurred in purchasing

livestock held for resale as freight paid. Instead, add these costs

to the cost of the livestock.

Line 20

Deduct on this line premiums paid for farm business insurance.

Deduct on line 15 amounts paid for employee accident and

health insurance. Amounts credited to a reserve for self-insur-

ance or premiums paid for a policy that pays for your lost earn-

ings due to sickness or disability aren't deductible. For details,

see chapter 4 of Pub. 225.

Lines 21a and 21b

Interest allocation rules. The tax treatment of interest ex-

pense differs depending on its type. For example, home mort-

gage interest and investment interest are treated differently. In-

terest allocation rules require you to allocate (classify) your

interest expense so it's deducted (or capitalized) on the correct

line of your return and receives the right tax treatment. These

rules could affect how much interest you are allowed to deduct

on Schedule F (Form 1040).

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In most cases, you allocate interest expense by tracing how

the proceeds of the loan are used. See chapter 4 of Pub. 225 for

details.

If you paid interest on a debt secured by your main home

and any of the proceeds from that debt were used in your farm-

ing business, see chapter 4 of Pub. 225 to figure the amount to

include on lines 21a and 21b.

How to report. Before entering an amount on line 21a or 21b,

see the Instructions for Form 8990 to identify whether you are

required to limit your business interest expense or whether you

can elect not to limit your business interest expense. If you are

required to limit your business interest expense, include only

the amount you are allowed to deduct on lines 21a and 21b. If

you are not required to limit your business interest expense and

if you have a mortgage on real property used in your farming

business (other than your main home), enter on line 21a the in-

terest you paid for 2023 to banks or other financial institutions

for which you received a Form 1098 (or similar statement). If

you didn't receive a Form 1098, enter the interest on line 21b.

If you paid more mortgage interest than is shown on Form

1098 (or similar statement), see chapter 4 of Pub. 225 to find

out if you can deduct the additional interest. If you can, include

the amount on line 21a. Attach a statement to your return ex-

plaining the difference and enter “See attached” in the margin

next to line 21a.

If you and at least one other person (other than your spouse

if you file a joint return) were liable for and paid interest on the

mortgage and the other person received the Form 1098 (or sim-

ilar statement), include your share of the interest on line 21b.

Attach a statement to your return showing the name and ad-

dress of the person who received the Form 1098 (or similar

statement). In the margin next to line 21b, enter “See attached.”

Don't deduct interest you prepaid in 2023 for later years; in-

clude only the part that applies to 2023.

Line 22

Enter the amounts you paid for farm labor. Don't include

amounts paid to yourself. Reduce your deduction by the

amounts claimed on the following.

•

Form 5884, Work Opportunity Credit.

•

Form 8844, Empowerment Zone Employment Credit.

•

Form 8932, Credit for Employer Differential Wage Pay-

ments.

•

Form 8994, Employer Credit for Paid Family and Medi-

cal Leave.

Include the cost of boarding farm labor but not the value of

any products they used from the farm. Include only what you

paid household help to care for farm laborers.

If you provided taxable fringe benefits to your employ-

ees, such as personal use of a car, don't include in

farm labor the amounts you depreciated or deducted

elsewhere.

Line 23

Enter your deduction for contributions to employee pension,

profit-sharing, or annuity plans. If the plan included you as a

CAUTION

self-employed person, enter contributions made as an employer

on your behalf on Schedule 1 (Form 1040), line 16, not on

Schedule F (Form 1040).

In most cases, you must file the applicable form listed next

if you maintain a pension, profit-sharing, or other funded-de-

ferred compensation plan. The filing requirement isn't affected

by whether the plan qualified under the Internal Revenue Code,

or whether you claim a deduction for the current tax year.

There is a penalty for failure to timely file these forms. See

U.S. Department of Labor.

Form 5500-EZ. File this form if you have a one-participant

retirement plan that meets certain requirements. A one-partici-

pant plan is a plan that covers only you (or you and your

spouse).

Form 5500-SF. File this form electronically with the Depart-

ment of Labor (at efast.dol.gov) if you have a small plan (fewer

than 100 participants in most cases) that meets certain require-

ments.

Form 5500. File this form electronically with the Department

of Labor (at efast.dol.gov) for a plan that doesn't meet the re-

quirements for filing Form 5500-EZ or 5500-SF.

For details, see Pub. 560.

Lines 24a and 24b

If you rented or leased vehicles, machinery, or equipment, enter

on line 24a the business portion of your rental cost. But, if you

leased a vehicle for a term of 30 days or more, you may have to

reduce your deduction by an inclusion amount. See Leasing a

Car in chapter 4 of Pub. 463 to figure this amount.

Enter on line 24b amounts paid to rent or lease other proper-

ty such as pasture or farmland.

Line 25

Enter amounts you paid for repairs and maintenance of farm

buildings, machinery, and equipment that are not payments for

improvements to the property. Amounts are paid for improve-

ments if they are for betterments to your property or restora-

tions of your property (such as the replacements of major com-

ponents or substantial structural parts), or if they adapt your

property to a new or different use. See chapter 4 of Pub. 225

for more information.

Don't deduct repairs or maintenance on your home.

However, you may be able to elect to capitalize and depreci-

ate certain amounts paid for repair and maintenance of tangible

property to the extent you treat these amounts as capital expen-

ditures on your books and records regularly used in figuring

your income and expenses. For details, see chapter 8 of Pub.

225.

Line 29

You can deduct the following taxes on this line.

•

Real estate and personal property taxes on farm business

assets.

•

Social security and Medicare taxes you paid to match

what you are required to withhold from farm employees' wa-

ges.

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Do not reduce your deduction for social security and

Medicare taxes by the nonrefundable and refundable

portions of the FFCRA and ARP credits for qualified

sick and family leave wages claimed on an employment tax re-

turn. Instead, report the credits as income on line 8.

•

Federal unemployment tax.

•

Federal highway use tax.

•

Contributions to a state unemployment insurance fund or

disability benefit fund if they're considered taxes under state

law.

Don't deduct the following taxes on this line.

•

Federal income taxes, including your self-employment

tax. However, you can deduct one-half of self-employment tax

on Schedule 1 (Form 1040), line 15.

•

Estate and gift taxes.

•

Taxes assessed for improvements, such as paving and

sewers.

•

Taxes on your home or personal-use property. You may

be able to deduct on line 32 expenses related to your home or

principle residence, such as property taxes, if you use your

home to conduct farming activities. See Business use of your

home, later.

•

State and local sales taxes on property purchased for use

in your farming business. Instead, treat these taxes as part of

the cost of the property.

•

Other taxes not related to your farming business.

Line 30

Enter amounts you paid for gas, electricity, water, and other

utilities for business use on the farm. Don't include personal

utilities. You can't deduct the base rate (including taxes) of the

first telephone line into your residence, even if you use it for

your farming business. But you can deduct expenses you paid

for your farming business that are more than the cost of the

base rate for the first phone line. For example, if you had a sec-

ond phone line, you can deduct the business percentage of the

charges for that line, including the base rate charges.

Lines 32a Through 32f

Include all ordinary and necessary farm expenses not deducted

elsewhere on Schedule F (Form 1040), such as advertising, of-

fice supplies, etc. Don't include fines or penalties paid to a gov-

ernment for violating any law. For details on business expen-

ses, see chapter 4 of Pub. 225.

At-risk loss deduction. Any loss from this activity that wasn't

allowed last year because of the at-risk rules is treated as a de-

duction allocable to this activity in 2023.

Bad debts. See chapter 8 of Pub. 334.

Business startup costs. If your farming business began in

2023, you can elect to deduct up to $5,000 of certain business

startup costs. The $5,000 limit is reduced (but not below zero)

by the amount by which your startup costs exceed $50,000.

Your remaining startup costs can be amortized over a

180-month period, beginning with the month the farming busi-

ness began. For details, see chapters 4 and 7 of Pub. 225. For

CAUTION

amortization that begins in 2023, you must complete and attach

Form 4562.

Business use of your home. You may be able to deduct cer-

tain expenses for business use of your home, subject to limita-

tions. You may also be able to use a simplified method to fig-

ure your deduction. Use the appropriate worksheets in Pub. 587

to figure your allowable deduction. Use the appropriate work-

sheets in Pub. 587 to figure your allowable deduction. Don't

use Form 8829.

De minimis safe harbor for tangible property. You may be

able to elect to use a de minimis safe harbor to deduct amounts

paid for certain tangible real or personal property used in your

farming business. If you elect the de minimis safe harbor for

the tax year, enter the total amounts you paid for property qual-

ifying under the de minimis safe harbor on line 32. Don’t in-

clude these amounts on any other line. For details, see chap-

ter 8 of Pub. 334.

Energy efficient commercial buildings deduction. You may

be able to deduct part or all of the expenses of modifying an

existing commercial building to make it energy efficient. For

details, see Form 7205 and its instructions.

Forestation and reforestation costs. Reforestation costs are

generally capital expenditures. However, for each qualified

timber property, you can elect to expense up to $10,000

($5,000 if married filing separately) of qualifying reforestation

costs paid or incurred in 2023.

You can elect to amortize the remaining costs over 84

months. For amortization that begins in 2023, you must com-

plete and attach Form 4562.

The amortization election doesn't apply to trusts, and the ex-

pense election doesn't apply to estates and trusts. For details on

reforestation expenses, see chapters 4 and 7 of Pub. 225.

Legal and professional fees. You can include on this line fees

charged by accountants and attorneys that are ordinary and nec-

essary expenses directly related to your farming business. In-

clude fees for tax advice and for the preparation of tax forms

related to your farming business. Also, include expenses incur-

red in resolving asserted tax deficiencies related to your farm-

ing business.

Tools. You can deduct the amount you paid for tools that have

a short life or cost a small amount, such as shovels and rakes.

Travel and meals. In most cases, you can deduct expenses for

farm business travel and 50% of your business meals. See the

instructions for Schedule C (Form 1040), lines 24a and 24b.

Entertainment expenses related to your trade or busi-

ness are generally no longer deductible after 2017.

Preproductive period expenses. If you had preproductive pe-

riod expenses in 2023 that you are capitalizing, enter the total

of these expenses in parentheses on line 32f (to indicate a nega-

tive amount) and enter “263A” in the space to the left of the to-

tal.

CAUTION

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For details, see Capitalizing costs to property produced and

property acquired for resale, earlier, and Uniform Capitaliza-

tion Rules in chapter 6 of Pub. 225.

Excess business loss limitation. Noncorporate taxpayers may

be subject to excess business loss limitations. The at-risk limits

and the passive activity limits are applied before calculating the

amount of any excess business loss. An excess business loss is

the amount by which the total deductions attributable to all of

your trades or businesses exceed your total gross income and

gains attributable to those trades or businesses plus $289,000

(or $578,000 in the case of a joint return). A trade or business

includes, but is not limited to, Schedule F and Schedule C ac-

tivities, an activity reported on Form 4835, and other business

activities reported on Schedule E.

Business gains and losses reported on Form 4797 and Form

8949 are included in the excess business loss calculation. This

includes farming losses from casualty losses or losses by rea-

son of disease or drought. Excess business losses that are disal-

lowed are treated as an NOL carryover to the following tax

year. See Form 461 and its instructions for details.

Line 33

If line 32f is a negative amount, subtract it from the total of

lines 10 through 32e. Enter the result on line 33.

Line 34

Figuring your net profit or loss. If line 33 is more than

line 9, don't enter your loss on line 34 until you have applied

the at-risk rules and the passive activity loss rules. To apply

these rules, follow the instructions for line 36 and the Instruc-

tions for Form 8582. After applying these rules, the amount on

line 34 will be your loss, and it may be smaller than the amount

figured by subtracting line 33 from line 9. You may also be re-

quired to file Form 461, which limits the allowable loss. See

Form 461 and its instructions for more information.

If line 9 is more than line 33, and you don't have prior year

unallowed passive activity losses, subtract line 33 from line 9.

The result is your net profit.

If line 9 is more than line 33, and you have prior year unal-

lowed passive activity losses, don't enter your net profit on

line 34 until you have figured the amount of prior year unal-

lowed passive activity losses you may claim this year for this

activity. Use Form 8582 to figure the amount of prior year un-

allowed passive activity losses you may include on line 34.

Make sure to indicate that you are including prior year passive

activity losses by entering "PAL" to the left of the entry space.

If you checked the "No" box on line E, see the Instructions

for Form 8582; you may need to include information from this

schedule on that form, even if you have a net profit.

Partnerships. Subtract line 33 from line 9. If the amount is

a loss, the partners may need to apply the at-risk rules and the

passive activity loss rules to determine the amount of their loss

on line 34. A partner may also be required to file Form 461 to

limit any excess business loss. See Form 461 and its instruc-

tions for more information.

Reporting your net profit or loss. Once you have figured

your net profit or loss, report it as follows. You must also con-

sider any excess business loss limitation. See Form 461 and its

instructions for more information.

Individuals. Enter your net profit or loss on line 34 and on

Schedule 1 (Form 1040), line 6 and; Schedule SE (Form 1040),

line 1a.

Nonresident aliens. Enter the net profit or loss on line 34

and on Schedule 1 (Form 1040), line 6. You should also enter

this amount on Schedule SE (Form 1040), line 1a, if you are

covered under the U.S. social security system due to an interna-

tional social security agreement currently in effect. See the In-

structions for Schedule SE (Form 1040) or SSA.gov/

international/agreements for information on international so-

cial security agreements.

Partnerships. Enter the net profit or loss on line 34 and on

Form 1065, line 5. The excess business loss rules are applied at

the partner level.

Trusts and estates. Enter the net profit or loss on line 34

and on Form 1041, line 6.

Community income. If you and your spouse had community

income and are filing separate returns, see the Instructions for

Schedule SE (Form 1040) before figuring self-employment tax.

Earned income credit. If you have a net profit on line 34, this

amount is earned income and may qualify you for the earned

income credit if you meet certain conditions. See the instruc-

tions for Form 1040, line 27, for details.

Conservation Reserve Program (CRP) payments. If you re-

ceived social security retirement or disability benefits in addi-

tion to CRP payments, the CRP payments aren't subject to

self-employment tax. You will deduct these payments from

your net farm profit or loss on Schedule SE (Form 1040),

line 1b. Don't make any adjustment on Schedule F (Form

1040).

Line 35

Reserved for future use.

Line 36

You don't need to complete line 36 if line 9 is more

than line 33.

At-risk rules. In most cases, if you have a loss from a farming

activity and amounts invested in the activity for which you

aren't at risk, you must complete Form 6198 to figure your al-

lowable loss. The at-risk rules generally limit the amount of

loss (including loss on the disposition of assets) you can claim

to the amount you could actually lose in the activity.

Check box 36b if you have amounts invested in this activity

for which you aren't at risk, such as the following.

•

Nonrecourse loans used to finance the activity, to acquire

property used in the activity, or to acquire the activity that

aren't secured by your own property (other than property used

in the activity). However, there is an exception for certain non-

TIP

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

recourse financing borrowed by you in connection with holding

real property.

•

Cash, property, or borrowed amounts used in the activity

(or contributed to the activity, or used to acquire the activity)

that are protected against loss by a guarantee, stop-loss agree-

ment, or other similar arrangement (excluding casualty insur-

ance and insurance against tort liability).

•

Amounts borrowed for use in the activity from a person

who has an interest in the activity, other than as a creditor, or

who is related under section 465(b)(3)(C) to a person (other

than you) having such an interest.

Figuring your loss. Before determining your loss on line 34,

you must check box 36a or 36b to determine if your loss from

farming is limited by the at-risk rules. Follow the instructions

below that apply to your box 36 activity.

All investment is at risk. If all your investment amounts are

at risk in this activity, check box 36a. If you also checked the

“Yes” box on line E, your remaining loss is your loss. The

at-risk rules and the passive activity loss rules don't apply. See

Line 34, earlier, for how to report your loss.

But, if you checked the “No” box on line E, you may need

to complete Form 8582 to figure your loss to enter on Line 34.

See the Instructions for Form 8582.

Some investment isn't at risk. If some investment isn't at

risk, check box 36b; the at-risk rules apply to your loss. Be sure

to attach Form 6198 to your return.

If you also checked the “Yes” box on line E, complete Form

6198 to determine the amount of your loss. The passive activity

loss rules don't apply. See Line 34, earlier, for how to report

your loss.

But, if you checked the “No” box on line E, the passive ac-

tivity loss rules may apply. First, complete Form 6198 to figure

the amount of your profit or loss for the at-risk activity, which

may include amounts reported on other forms and schedules,

and the at-risk amount for the activity. Follow the Instructions

for Form 6198 to determine how much of your Schedule F

(Form 1040) loss to enter on line 34. After you figure the

amount of your loss under the at-risk rules, you may need to

complete Form 8582 to figure the amount of loss to enter on

line 34. See the Instructions for Form 8582 for details.

If you checked box 36b because some investment isn't

at risk and you don't attach Form 6198, the process-

ing of your return may be delayed.

At-risk loss deduction. Any loss from this activity not al-

lowed for 2023 only because of the at-risk rules is treated as a

deduction allocable to the activity in 2024.

More information. For details, see Pub. 925 and the Instruc-

tions for Form 6198. Also, see Form 461 and its instructions.

Note. Form 1040-SS filers skip this line.

CAUTION

Part III. Farm Income—Accrual

Method

You may be required to use the accrual method of accounting.

If you use the accrual method, report farm income when it is

due, paid, earned, or taken into account as revenue in its appli-

cable financial statement, not when you receive it. In most ca-

ses, you must include animals and crops in your inventory if

you use this method. See Pub. 225 for exceptions, inventory

methods, how to change methods of accounting, and rules that

require certain costs to be capitalized or included in inventory.

For information about accounting periods, see Pub. 538.

Chapter 11 bankruptcy. If you were a debtor in a chapter 11

bankruptcy case during 2023, see Chapter 11 Bankruptcy Ca-

ses in the Instructions for Form 1040 (under Income) and the

Instructions for Schedule SE (Form 1040).

Lines 38a Through 40c

See the instructions for lines 3a through 5c, earlier.

Line 43

See Line 8, earlier.

Paperwork Reduction Act Notice. We ask for the informa-

tion on this form to carry out the Internal Revenue laws of the

United States. You are required to give us the information. We

need it to ensure that you are complying with these laws and to

allow us to figure and collect the right amount of tax.

You aren't required to provide the information requested on

a form that is subject to the Paperwork Reduction Act unless

the form displays a valid OMB control number. Books or re-

cords relating to a form or its instructions must be retained as

long as their contents may become material in the administra-

tion of any Internal Revenue law. Generally, tax returns and re-

turn information are confidential, as required by section 6103.

The time needed to complete and file this form will vary de-

pending on individual circumstances. The estimated burden for

individual taxpayers filing this form is included in the esti-

mates shown in the instructions for their individual income tax

return. The estimated burden for all other taxpayers who file

this form is approved under OMB control number 1545-1975

and is shown next.

Recordkeeping ....................... 11 hr., 16 min.

Learning about the law or the form........... 2 hr., 33 min.

Preparing and sending the form to the IRS ...... 5 hr., 10 min.

If you have comments concerning the accuracy of these time

estimates or suggestions for making this form simpler, we

would be happy to hear from you. See the instructions for the

tax return with which this form is filed.

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