8621 Instructions

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I.R.S. SPECIFICATIONS

TO BE REMOVED BEFORE PRINTING

INSTRUCTIONS TO PRINTERS
SCHEDULE F (FORM 1040), PAGE 1 of 2
MARGINS: TOP 13mm (1⁄2 "), CENTER SIDES.
PAPER: WHITE, WRITING, SUB. 20
FLAT SIZE: 203mm (8")
279mm (11")
PERFORATE: (NONE)

Date

Revised proofs
requested

OMB No. 1545-0074

Profit or Loss From Farming
䊳

2005

Attach to Form 1040, Form 1041, Form 1065, or Form 1065-B.

Department of the Treasury
(99)
Internal Revenue Service

䊳

Signature

O.K. to print

PRINTS: HEAD to HEAD
INK: BLACK

DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

SCHEDULE F
(Form 1040)

Action

Attachment
Sequence No.

See Instructions for Schedule F (Form 1040).

14

Name of proprietor

Social security number (SSN)

A Principal product. Describe in one or two words your principal crop or activity for the current tax year.

B Enter code from Part IV

C Accounting method:

D Employer ID number (EIN), if any

䊳

(1)

Cash

(2)

Accrual

E Did you “materially participate” in the operation of this business during 2005? If “No,” see page F-2 for limit on passive losses.

Part I

Yes

No

Farm Income—Cash Method. Complete Parts I and II (Accrual method. Complete Parts II and III, and Part I, line 11.)
Do not include sales of livestock held for draft, breeding, sport, or dairy purposes; report these sales on Form 4797.

1

Sales of livestock and other items you bought for resale

1

2

Cost or other basis of livestock and other items reported on line 1

2

3

Subtract line 2 from line 1

3
4

4

Sales of livestock, produce, grains, and other products you raised
5a
5a Cooperative distributions (Form(s) 1099-PATR)
6a
6a Agricultural program payments (see page F-2)
7

5b Taxable amount

5b

6b Taxable amount

6b

7c Taxable amount

7c

Commodity Credit Corporation (CCC) loans (see page F-3):
7a

a CCC loans reported under election
7b

b CCC loans forfeited
8

Crop insurance proceeds and Federal crop disaster payments (see page F-3):
8a

a Amount received in 2005

c If election to defer to 2006 is attached, check here

䊳

8b Taxable amount

8b
8d

8d Amount deferred from 2004

Custom hire (machine work) income

9

10

Other income, including Federal and state gasoline or fuel tax credit or refund (see page F-3)

10

11

Gross income. Add amounts in the right column for lines 3 through 10. If you use the accrual method, enter
䊳
the amount from Part III, line 51

11

9

Part II
12

Farm Expenses—Cash and Accrual Method.
Do not include personal or living expenses such as taxes, insurance, repairs, etc., on your home.

Car and truck expenses (see
page F-4—also attach Form 4562)

12

13

Chemicals

13

14

Conservation expenses (see
page F-4)

14

a Vehicles,
equipment

15

Custom hire (machine work)

15

b Other (land, animals, etc.)

16

Depreciation and section 179
expense deduction not claimed
elsewhere (see page F-4)

17

16

25

Pension and profit-sharing
plans

26

Rent or lease (see page F-5):
machinery,

25

and
26a
26b

27

Repairs and maintenance

27

28

Seeds and plants

28

29

Storage and warehousing

29

30

Supplies

30
31

Employee benefit programs other
than on line 25

17

31

Taxes

18

Feed

18

32

Utilities

32

19

Fertilizers and lime

19

33

Veterinary, breeding, and medicine

33

34

20

Freight and trucking

20

21

Gasoline, fuel, and oil

21

a

34a

22

Insurance (other than health)

22

b

34b

23

Interest:

c

34c

23a

d
e
f

34d

a Mortgage (paid to banks, etc.)
b Other
24 Labor hired (less employment credits)

23b
24

Other expenses (specify):

34e
34f
䊳

35

Total expenses. Add lines 12 through 34f

36

Net farm profit or (loss). Subtract line 35 from line 11.
● If a profit, enter on Form 1040, line 18, and also on Schedule SE, line 1.
● If a loss, you must go to line 37. Estates, trusts, and partnerships, see page F-6.

37

If you have a loss, you must check the box that describes your investment in this activity (see page F-6).
● If you checked 37a, enter the loss on Form 1040, line 18, and also on Schedule SE, line 1.
● If you checked 37b, you must attach Form 6198. Your loss may be limited.

For Paperwork Reduction Act Notice, see page F-6 of the instructions.


Cat. No. 11346H

35
36



37a

All investment is at risk.

37b

Some investment is not at risk.

Schedule F (Form 1040) 2005

5
I.R.S. SPECIFICATIONS
TO BE REMOVED BEFORE PRINTING
INSTRUCTIONS TO PRINTERS
SCHEDULE F (FORM 1040, PAGE 2 of 2
MARGINS: TOP 13mm (1⁄2 "), CENTER SIDES. PRINTS: HEAD to HEAD
PAPER: WHITE, WRITING, SUB. 20
INK: BLACK
FLAT SIZE: 203mm (8") x 279mm (11")
PERFORATE: (NONE)
DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

Schedule F (Form 1040) 2005

Part III

Page

2

Farm Income—Accrual Method (see page F-6).
Do not include sales of livestock held for draft, breeding, sport, or dairy purposes; report these sales on Form
4797 and do not include this livestock on line 46 below.

38

38

Sales of livestock, produce, grains, and other products

39a Cooperative distributions (Form(s) 1099-PATR)

39a

39b Taxable amount

39b

40a Agricultural program payments

40a

40b Taxable amount

40b

41

Commodity Credit Corporation (CCC) loans:
41a

a CCC loans reported under election
b CCC loans forfeited

41b

41c Taxable amount

41c

42

Crop insurance proceeds

42

43

Custom hire (machine work) income

43

44

Other income, including Federal and state gasoline or fuel tax credit or refund

44

45

Add amounts in the right column for lines 38 through 44

45

46

Inventory of livestock, produce, grains, and other products at beginning of
the year

46

Cost of livestock, produce, grains, and other products purchased during
the year

47

48

Add lines 46 and 47

48

49

Inventory of livestock, produce, grains, and other products at end of year

49

50

Cost of livestock, produce, grains, and other products sold. Subtract line 49 from line 48*

51

Gross income. Subtract line 50 from line 45. Enter the result here and on Part I, line 11

47

50
䊳

51

*If you use the unit-livestock-price method or the farm-price method of valuing inventory and the amount on line 49 is larger than the amount on
line 48, subtract line 48 from line 49. Enter the result on line 50. Add lines 45 and 50. Enter the total on line 51 and on Part I, line 11.

Part IV Principal Agricultural Activity Codes
File Schedule C (Form 1040) or Schedule C-EZ
(Form 1040) instead of Schedule F if (a) your
CAUTION
principal source of income is from providing
agricultural services such as soil preparation, veterinary,
farm labor, horticultural, or management for a fee or on a
contract basis, or (b) you are engaged in the business of
breeding, raising, and caring for dogs, cats, or other pet
animals.
These codes for the Principal Agricultural Activity classify
farms by the type of activity they are engaged in to facilitate the
administration of the Internal Revenue Code. These six-digit
codes are based on the North American Industry Classification
System (NAICS).
Select the code that best identifies your primary farming
activity and enter it on page 1, line B.

111300
111400
111900

Fruit and tree nut farming
Greenhouse, nursery, and floriculture production
Other crop farming

Crop Production
111100
Oilseed and grain farming
111210
Vegetable and melon farming

Forestry and Logging
113000
Forestry and logging (including forest nurseries
and timber tracts)

Animal Production
112111
Beef cattle ranching and farming
112112
Cattle feedlots
112120
Dairy cattle and milk production
112210
Hog and pig farming
112300
Poultry and egg production
112400
Sheep and goat farming
112510
Animal aquaculture
112900
Other animal production

Schedule F (Form 1040) 2005

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Department of the Treasury
Internal Revenue Service

2005 Instructions for Schedule F
Use Schedule F (Form 1040) to report farm income and expenses. File it with Form 1040,
1041, 1065, or 1065-B.
Profit or Loss
This activity may subject you to state and local taxes and other requirements such as
business licenses and fees. Check with your state and local governments for more informaFrom Farming
tion.
Additional information. Pub. 225 has samples of filled-in forms and schedules, and lists
important dates that apply to farmers.
Section references are to the Internal Revenue Code unless otherwise noted.

employees in the Hurricane Katrina disaster area, you may be eligible for a credit
against the wages you paid them while your
business was inoperable. For more information, see Form 5884-A.

• Form 4835 to report rental income
based on farm production or crop shares if
you did not materially participate in the
management or operation of the farm. This
income is not subject to self-employment
tax. See Pub. 225.
• Form 8824 to report like-kind exchanges.
• Form 8903 to take a deduction for income from domestic production activities.

Biodeisel and renewable diesel fuels credit.

Heavy highway vehicle use tax. If you use

What’s New
Employee retention credit for employers
affected by Hurricane Katrina. If you had

If you claimed the biodiesel and renewable
diesel fuels credit on Form 8864, you must
include the credit in your income on line 10
if you use the cash method or line 44 if you
use the accrual method. See the instructions
for line 10 on page F-3.

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.
Information returns. You may have to file

General Instructions
Other Schedules and Forms
You May Have To File
• Schedule E, Part I, to report rental in-

come from pastureland that is based on a
flat charge. Report on Schedule F, line 10,
pasture income received from taking care
of someone else’s livestock.
• Schedule J to figure your tax by averaging your farm income over the previous 3
years. Doing so may reduce your tax.
• Schedule SE to pay self-employment
tax on income from your farming business.
• Form 4562 to claim depreciation on
assets placed in service in 2005, to claim
amortization that began in 2005, 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 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.

information returns for wages paid to employees, certain payments of fees and other
nonemployee compensation, interest, rents,
royalties, annuities, and pensions. You may
also have to file an information return if
you sold $5,000 or more of consumer products to a person on a buy-sell, deposit-commission, or other similar basis for resale.
For details, see the 2005 General Instructions for Forms 1099, 1098, 5498, and
W-2G.
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 2005, you must file Form
8886 to disclose information if your federal
income tax liability is affected by your participation in the transaction. You may have
to pay a penalty if you are required to file
Form 8886 but do not do so. You may also
have to pay interest and penalties on any
reportable transaction understatements. For
more information on reportable transactions, see Reportable Transaction Disclosure Statement that begins on page C-1 of
the Instructions for Schedule C.

Estimated Tax
If you had to make estimated tax payments
in 2005 and you underpaid your estimated
tax, you will not be charged a penalty if
both of the following apply.

F-1
Cat. No. 17152R

• Your gross farming or fishing income
for 2004 or 2005 is at least two-thirds of
your gross income.
• You file your 2005 tax return and pay
the tax due by March 1, 2006.
For details, see Pub. 225.

Specific Instructions
Filers of Forms 1041,
1065, and 1065-B
Do not complete the block labeled “Social
security number (SSN).” Instead, enter
your employer identification number (EIN)
on line D.

Line B
On line B, enter one of the 14 principal
agricultural activity codes listed in Part IV
on page 2 of Schedule F. Select the code
that best describes the source of most of
your income.

Line C
If you use the cash method, check the box
labeled “Cash.” Complete Schedule F,
Parts I and II. Generally, report 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 asset
having a useful life that extends substantially beyond the close of the year, it may
not be deductible or may be deductible only
in part for the year of the payment. See Pub.
225.
If you use an accrual method, check the
box labeled “Accrual.” Complete Schedule
F, Parts II, III, and Part I, line 11. Generally, report income in the year in which you
earned it and deduct expenses in the year
you incurred them, even if you did not pay
them in that year. Accrual basis taxpayers
are put on a cash basis for deducting business expenses owed to a related cash-basis
taxpayer. Other rules determine the timing
of deductions based on economic performance. See Pub. 538.

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Farming syndicates cannot use the cash
method of accounting. A farming syndicate
may be a partnership, any other
noncorporate group, or an S corporation if:
• The interests in the business have ever
been for sale in a way that would require
registration with any federal or state
agency, or
• More than 35% of the loss during any
tax year is shared by limited partners or
limited entrepreneurs. A limited partner is
one who can lose only the amount invested
or required to be invested in the partnership. A limited entrepreneur is a person
who does not take any active part in managing the business.

Line D
You need an employer identification number (EIN) only if you had a qualified retirement plan or were required to file an
employment, excise, estate, trust, partnership, or alcohol, tobacco, and firearms tax
return. If you need an EIN, see the Instructions for Form SS-4. If you do not have an
EIN, leave line D blank.

Line E
Material participation. For the definition

of material participation for purposes of the
passive activity rules, see the instructions
for Schedule C, line G, that begin on page
C-2. 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 of the 8 years preceding your
retirement or disability. Also, a surviving
spouse is treated as materially participating
in a farming activity if the real property
used for farming meets the estate tax rules
for special valuation of farm property
passed from a qualifying decedent, and the
surviving spouse actively manages the
farm.
Check the “No” box if you did not materially participate. If you checked “No” and
you have a loss from this business, see
Limit on passive losses below. If you have
a profit from this business activity but have
current year losses from other passive 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, line 36. Generally,
you can deduct losses from passive activities only to the extent of income from passive activities. For details, see Pub. 925.

Part I. Farm Income—
Cash Method
In Part I, show income received for items
listed on lines 1 through 10. Generally, include both the cash actually or constructively received and the fair market value of
goods or other property received for these
items. Income is constructively received
when it is credited to your account or set
aside for you to use. However, direct payments or counter-cyclical payments received under the Farm Security and Rural
Investment Act of 2002 are required to be
included in income only in the year of actual receipt.
If you ran the farm yourself and received rents based on crop shares or farm
production, report these rents as income on
line 4.

Sales of Livestock
Because of WeatherRelated Conditions
If you sold livestock because of drought,
flood, or other weather-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 Pub. 225 for details.

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. Include the
Form 1099 or CCC-1099-G amounts in the
total amount reported on that line.
Where to
report

Form

1099-PATR . . . . . . . . . .
1099-A . . . . . . . . . . . . .
1099-MISC
(for crop insurance) . .
1099-G or CCC-1099-G
(for disaster payments)
(for other agricultural
program payments) . . .

..
..

Line 5a
Line 7b

..

Line 8a

..

Line 8a

..

Line 6a

You may also receive Form 1099-MISC
for other types of income. In this case, report it on whichever line best describes the
income. For example, if you received a
Form 1099-MISC for custom farming
work, include this amount on line 9, “Custom hire (machine work) income.”

F-2

Lines 5a and 5b
If you received distributions from a cooperative in 2005, you should receive
Form 1099-PATR. On line 5a, show your
total distributions from cooperatives. This
includes patronage dividends, nonpatronage distributions, per-unit retain allocations, and redemption of nonqualified
notices and per-unit retain allocations.
Show patronage dividends received in
cash and the dollar amount of qualified
written notices of allocation. If you received property as patronage dividends, report the fair market value 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 retain certificates, show the stated
dollar amount of the certificates.
Do not include as income on line 5b
patronage dividends from buying personal
or family items, capital assets, or depreciable assets. Enter these amounts on line 5a
only. If you do not 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 6a and 6b
Enter on line 6a the total of the following
amounts.
• Direct payments.
• Counter-cyclical payments.
• Price support 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 government payments
you received, 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 6b, report only the taxable
amount. For example, do not report the
market gain shown on Form CCC-1099-G
on line 6b if you elected to report CCC loan
proceeds as income in the year received
(see Lines 7a Through 7c on page F-3). No
gain results from redemption of the commodity because you previously reported
the CCC loan proceeds as income. You are
treated as repurchasing the commodity for
the amount of the loan repayment. However, if you did not report the CCC loan
proceeds under the election, you must report the market gain on line 6b.

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Lines 7a Through 7c
Commodity Credit Corporation (CCC)
loans. Generally, you do not report CCC

loan proceeds 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, instead of the year you sell
the crop. If you make this election (or made
the election in a prior year), report loan
proceeds you received in 2005 on line 7a.
Attach a statement to your return showing
the details of the loan(s).
Forfeited CCC loans. Include the full
amount forfeited on line 7b, even if you
reported the loan proceeds as income.
If you did not elect to report the loan
proceeds as income, also include the forfeited amount on line 7c.
If you did elect to report the loan proceeds as income, you generally will not
have an entry on line 7c. But if the amount
forfeited is different from your basis in the
commodity, you may have an entry on
line 7c.
See Pub. 225 for details on the tax consequences of electing to report CCC loan
proceeds as income or forfeiting CCC
loans.

Lines 8a Through 8d
In general, you must report crop insurance
proceeds in the year you receive them. Federal crop disaster payments are treated as
crop insurance proceeds. However, if 2005
was the year of damage, you can elect to
include certain proceeds in income for
2006. To make this election, check the box
on line 8c and attach a statement to your
return. See Pub. 225 for a description of the
proceeds for which an election can be made
and for what you must include in your
statement.
Generally, if you elect to defer any eligible crop insurance proceeds, you must defer all such crop insurance proceeds
(including federal crop disaster payments).
Enter on line 8a the total crop insurance
proceeds you received in 2005, even if you
elect to include them in income for 2006.
Enter on line 8b the taxable amount of
the proceeds you received in 2005. Do not
include proceeds you elect to include in
income for 2006.
Enter on line 8d the amount, if any, of
crop insurance proceeds you received in
2004 and elected to include in income for
2005.

Line 10
Use this line to report income not shown on
lines 1 through 9, such as the following.
• Illegal federal irrigation subsidies. See
Pub. 225.
• Bartering income.
• Income from cancellation of debt.
Generally, if a debt is canceled or forgiven,
you must include the canceled amount in
income. If a federal agency, financial insti-

tution, or credit union canceled or forgave a
debt you owed of $600 or more, it should
send you a Form 1099-C, or similar statement, by January 31, 2006, showing the
amount of debt canceled in 2005. However,
certain solvent farmers can exclude canceled qualified farm indebtedness from income. To find out if you must include any
cancellation of debt in income, see Pub.
225.
• State gasoline or fuel tax refund you
received in 2005.
• The amount of credit for federal tax
paid on fuels claimed on your 2004 Form
1040.
• The amount of credit for alcohol used
as fuel that was claimed on Form 6478.
• The amount of biodiesel and renewable diesel fuels credit that was claimed on
Form 8864.
• Any recapture of excess depreciation,
including any section 179 expense deduction, if the business use percentage of any
listed property decreased to 50% or less in
2005. Use Form 4797 to figure the recapture. See the instructions for Schedule C,
line 13, on page C-4 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 Pub. 946 to figure the amount.
• Any recapture of the deduction for
clean-fuel vehicles used in your farming
business and clean-fuel vehicle refueling
property. For details on how to figure recapture, see Pub. 535.
• The gain or loss on the sale of commodity futures contracts if the contracts
were made to protect you from price
changes. These are a form of business insurance and are considered hedges. If you
had a loss in a closed futures contract, enclose it in parentheses.

For property acquired and
hedging positions established,
you must clearly identify on
your books and records both the
hedging transaction and the item(s) or aggregate risk that is being hedged.
Purchase or sales contracts are not 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 changes, report the profit
or loss on Form 6781 instead of this line.

Part II. Farm
Expenses
Do not deduct the following.
• Personal or living expenses (such as
taxes, insurance, or repairs on your home)
that do not produce farm income.
• Expenses of raising anything you or
your family used.
• The value of animals you raised that
died.
• Inventory losses.

F-3

• Personal losses.
If you were repaid for any part of an
expense, you must subtract the amount you
were repaid from the deduction.
Capitalizing costs of property. If you produced real or tangible personal property or
acquired property for resale, certain expenses must be included in inventory costs
or capitalized. These expenses include the
direct costs of the property and the share of
any indirect costs allocable to that property.
However, these rules generally do not apply to expenses of:

1. Producing any plant that has a
preproductive period of 2 years or less,
2. Raising animals, or
3. Replanting certain crops if they were
lost or damaged by reason of freezing temperatures, disease, drought, pests, or casualty.

Exceptions 1 and 2 above do
not apply to tax shelters, farming syndicates, or partnerships
required to use the accrual
method of accounting under section 447 or
448.
But you may be able to currently deduct
rather than capitalize the expenses of producing a plant with a preproductive period
of more than 2 years. See Election to
deduct certain preproductive period expenses below.
Do not reduce your deductions on lines
12 through 34e by the preproductive period
expenses you must capitalize. Instead,
enter the total amount capitalized in parentheses on line 34f. See Preproductive period expenses on page F-6 for details.
If you revoked an election made before
1989 to deduct preproductive period expenses for animals, you must continue to
apply the alternative depreciation rules to
property placed in service while your election was in effect. Also, the expenses you
previously chose to deduct will have to be
recaptured as ordinary income when you
dispose of the animals.
Election to deduct certain preproductive
period expenses. If the preproductive pe-

riod of any plant you produce is more than
2 years, you can elect to currently deduct
the expenses rather than capitalize them.
But you cannot make this election for the
costs of planting or growing citrus or almond groves that are incurred before the
end of the 4th tax year beginning with the
tax year you planted them in their permanent grove. By deducting the preproductive
period expenses for which you can make
this election, you are treated as having
made the election.

In the case of a partnership or S
corporation, the election must
be made by the partner or shareholder. This election cannot be
made by tax shelters, farming syndicates,
or partners in partnerships required to use

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the accrual method of accounting under
section 447 or 448.
If you make the election to deduct
preproductive expenses for plants, any gain
you realize when disposing of the plants is
ordinary income up to the amount of the
preproductive expenses you deducted.
Also, the alternative depreciation rules apply to property placed in service in any tax
year your election is in effect. 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 capitalization rules. You cannot revoke this
election without IRS consent.
For details, see Pub. 225.
Prepaid farm supplies. Generally, if you
use the cash method of accounting and your
prepaid farm supplies are more than 50% of
your other deductible farm expenses, your
deduction for those supplies may be limited. Prepaid farm supplies include expenses for feed, seed, fertilizer, and similar
farm supplies not used or consumed during
the year. They also include the cost of poultry that would be allowable as a deduction
in a later tax year if you were to (a) 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 (b) 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 do not 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 exceptions to these rules, see Pub. 225.

Line 12
You can deduct the actual expenses of running your car or truck or take the standard
mileage rate. You must use actual expenses
if you used your vehicle for hire or you
used more than four vehicles simultaneously in your farming business (such as in
fleet operations). You cannot use actual expenses for a leased vehicle if you previously used the standard mileage rate for
that vehicle.
You can take the standard mileage rate
for 2005 only if you:
• Owned the vehicle and use 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 (except the period, if any, before
1998).
If you deduct actual expenses:
• Include on line 12 the business portion
of expenses for gasoline, oil, repairs, insurance, tires, license plates, etc., and
• Show depreciation on line 16 and rent
or lease payments on line 26a.

If you take the standard mileage rate,
multiply the number of business miles
driven by 40.5 cents (48.5 cents for business miles driven after August 31, 2005).
Add to this amount your parking fees and
tolls, and enter the total on line 12. Do not
deduct depreciation, rent or lease payments, or your actual operating expenses.
If you claim any car or truck expenses
(actual or the standard mileage rate), you
must provide the information requested on
Form 4562, Part V. Be sure to attach Form
4562 to your return.
For details, see Pub. 463.

Line 14
Deductible soil and water conservation expenses generally are those that are paid to
conserve soil and water or to prevent erosion of land used for farming. These expenses include (but are not limited to) the
cost of leveling, grading and terracing, contour furrowing, the construction, control,
and protection of diversion channels, drainage ditches, earthen dams, watercourses,
outlets and ponds, the eradication of brush,
and the planting of windbreaks.
These expenses can be deducted only if
they are consistent with a conservation plan
approved by the Natural Resources Conservation Service of the Department of Agriculture for the area in which your land is
located. If no plan exists, the expenses must
be consistent with a plan of a comparable
state agency. You cannot deduct the expenses if they were paid or incurred for
land used in farming in a foreign country.
Do not deduct expenses you paid or incurred to drain or fill wetlands, to prepare
land for center pivot irrigation systems, or
to clear land.
Your deduction cannot 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 deducted
in later tax years. However, the amount
deductible for any 1 year cannot exceed the
25% gross income limit for that year.
For details, see Pub. 225.

Line 15

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 2005 for use in your
farming business.
For details, including when you must
complete and attach Form 4562, see the
instructions for Schedule C, line 13, on
page C-4.

Line 17
Deduct contributions to employee benefit
programs that are not an incidental part of a
pension or profit-sharing plan included on
line 25. 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.
Do not include on line 17 any contributions you made on your behalf as a self-employed person to an accident and health
plan or for group-term life insurance. You
may be able to deduct on Form 1040, line
29, the amount you paid for health insurance on behalf of yourself, your spouse,
and dependents even if you do not itemize
your deductions. See the instructions for
Form 1040, line 29, for details.

Line 18
If you use the cash method, you cannot
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 was not made merely to avoid tax.
• Deducting the prepayment will not
materially distort your income.
If all of the above apply, you can deduct
the prepaid feed, which is subject to the
overall limit for Prepaid farm supplies explained on this page. If all of the above do
not apply, you can deduct the prepaid feed
only in the year it is consumed.

Enter amounts paid for custom hire or machine work (the machine operator furnished the equipment).
Do not include amounts paid for rental
or lease of equipment that you operated
yourself. Instead, report those amounts on
line 26a.

Do not 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, and deduct
them when the livestock is sold.

Line 16

Line 22

You can deduct depreciation of buildings,
improvements, cars and trucks, machinery,
and other farm equipment of a permanent
nature.
Do not deduct depreciation on your
home, furniture or other personal items,

F-4

Line 20

Deduct on this line premiums paid for farm
business insurance. Deduct on line 17
amounts paid for employee accident and
health insurance. Amounts credited to a reserve for self-insurance or premiums paid
for a policy that pays for your lost earnings

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due to sickness or disability are not deductible.

Lines 23a and 23b
Interest allocation rules. The tax treatment

of interest expense differs depending on its
type. For example, home mortgage interest
and investment interest are treated differently. “Interest allocation” rules require
you to allocate (classify) your interest expense so it is deducted 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.
Generally, you allocate interest expense
by tracing how the proceeds of the loan are
used. See Pub. 535 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 farming
business, see Pub. 535 to figure the amount
to include on lines 23a and 23b.
How to report. If you have a mortgage on
real property used in your farming business
(other than your main home), enter on line
23a the interest you paid for 2005 to banks
or other financial institutions for which you
received a Form 1098 (or similar statements). If you did not receive a Form 1098,
enter the interest on line 23b.
If you paid more mortgage interest than
is shown on Form 1098, see Pub. 535 to
find out if you can deduct the additional
interest. If you can, include the amount on
line 23a. Attach a statement to your return
explaining the difference and enter “See
attached” in the margin next to line 23a.
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, include your share of the
interest on line 23b. Attach a statement to
your return showing the name and address
of the person who received the Form 1098.
In the margin next to line 23b, enter “See
attached.”
Do not deduct interest you prepaid in
2005 for later years; include only the part
that applies to 2005.

Line 24
Enter the amounts you paid for farm labor.
Do not include amounts paid to yourself.
Reduce your deduction by the amounts
claimed on:
• Form 5884, Work Opportunity Credit,
line 2;
• Form 5884-A, Hurricane Katrina Employee Retention Credit, line 2;
• Form 8844, Empowerment Zone and
Renewal Community Employment Credit,
line 2;
• Form 8845, Indian Employment
Credit, line 4; and
• Form 8861, Welfare-to-Work Credit,
line 2.
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 employees,
such as personal use of a car, do
not include in farm labor the
amounts you depreciated or deducted elsewhere.

Line 25
Enter your deduction for contributions to
employee pension, profit-sharing, or annuity plans. If the plan included you as a
self-employed person, enter contributions
made as an employer on your behalf on
Form 1040, line 28, not on Schedule F.
Generally, you must file the applicable
form listed below if you maintain a pension, profit-sharing, or other funded-deferred compensation plan. The filing
requirement is not affected by whether or
not the plan qualified under the Internal
Revenue Code, or whether or not you claim
a deduction for the current tax year. There
is a penalty for failure to timely file these
forms.
Form 5500. File this form for a plan that is
not a one-participant plan (see below).
Form 5500-EZ. File this form for a
one-participant plan. A one-participant
plan is a plan that only covers you (or you
and your spouse).
For details, see Pub. 560.

Do not deduct the following taxes on
this line.
• Federal income taxes, including your
self-employment tax. However, you can
deduct one-half of your self-employment
tax on Form 1040, line 27.
• Estate and gift taxes.
• Taxes assessed for improvements,
such as paving and sewers.
• Taxes on your home or personal use
property.
• 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 32
Enter amounts you paid for gas, electricity,
water, etc., for business use on the farm. Do
not include personal utilities. You cannot
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 second phone line, you can deduct the business
percentage of the charges for that line, including the base rate charges.

Lines 34a Through 34f
Lines 26a and 26b
If you rented or leased vehicles, machinery,
or equipment, enter on line 26a 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 Pub. 463 to figure your inclusion
amount.
Enter on line 26b amounts paid to rent
or lease other property such as pasture or
farmland.

Line 27
Enter amounts you paid for repairs and
maintenance of farm buildings, machinery,
and equipment. You can also include what
you paid for tools of short life or minimal
cost, such as shovels and rakes.
Do not deduct repairs or maintenance on
your home.

Line 31
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’ wages and
any federal unemployment tax paid.
• Federal highway use tax.

F-5

Include all ordinary and necessary farm expenses not deducted elsewhere on Schedule
F, such as advertising, office supplies, etc.
Do not include fines or penalties paid to a
government for violating any law.
At-risk loss deduction. Any loss from this
activity that was not allowed as a deduction
last year because of the at-risk rules is
treated as a deduction allocable to this activity in 2005.
Bad debts. See Pub. 535.
Business start-up costs. If your business
began in 2005, you can elect to deduct up to
$5,000 for certain business start-up costs.
This limit is reduced by the amount by
which your start-up costs exceed $50,000.
You can elect to amortize any remaining
qualified business start-up costs over 15
years. For details, see Pub. 225. For amortization that begins in 2005, you must complete and attach Form 4562.
Business use of your home. You may be
able to deduct certain expenses for business
use of your home, subject to limitations.
Use the worksheet in Pub. 587 to figure
your allowable deduction. Do not use Form
8829.
Clean-fuel vehicles and clean-fuel vehicle
refueling property. You may be able to de-

duct part of the cost of qualified clean-fuel
vehicle property used in your farming business and qualified clean-fuel vehicle refueling property. See Pub. 535.
Forestation and reforestation costs. You
can elect to amortize certain forestation and
reforestation costs over 84 months. You

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can also elect to expense up to $10,000
($5,000 if married filing separately) of certain forestation and reforestation costs paid
or incurred in 2005, for each qualified timber property. The amortization election
does not apply to trusts and the expense
election does not apply to estates and trusts.
For details, see Pub. 225. For amortization
that begins in 2005, you must complete and
attach Form 4562.
Legal and professional fees. You can deduct on this line fees for tax advice related
to your farming business and for the preparation of the tax forms related to your farming business.
Travel, meals, and entertainment. Generally, you can deduct expenses for farm
business travel and 50% of your business
meals and entertainment. But there are exceptions and limitations. See the instructions for Schedule C, lines 24a and 24b,
that begin on page C-5.
Preproductive period expenses. If you had
preproductive period expenses in 2005 and
you decided to capitalize them, you must
enter the total of these expenses in parentheses on line 34f and enter “263A” in the
space to the left of the total. Subtract the
amount on line 34f from the total of lines
12 through 34e. Enter the result on line 35.
For details, see Capitalizing costs of
property on page F-3 and Pub. 225.

Line 36
If you have a loss, the amount of loss you
can deduct this year may be limited. Go to
line 37 before entering your loss on line 36.
If you checked the “No” box on Schedule
F, line E, also see the Instructions for Form
8582. Enter the net profit or deductible loss
here and on Form 1040, line 18, and Schedule SE, line 1. Estates and trusts should
enter the net profit or deductible loss here
and on Form 1041, line 6. Partnerships
should stop here and enter the profit or loss
on this line and on Form 1065, line 5 (or
Form 1065-B, line 7).
If you have a net profit on line 36, this
amount is earned income and may qualify
you for the earned income credit if you
meet certain conditions. See the instructions for Form 1040, lines 66a and 66b, for
details.

Line 37
At-risk rules. Generally, if you have a loss
from a farming activity and amounts in the
activity for which you are not at risk, you
will have to complete Form 6198 to figure
your allowable 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 37b if you have amounts for
which you are not at risk in this activity,
such as the following.
• Nonrecourse loans used to finance the
activity, to acquire property used in the activity, or to acquire the activity that are not
secured by your own property (other than
property used in the activity). However,
there is an exception for certain nonrecourse 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 agreement, or other similar arrangement (excluding casualty insurance
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) to a person (other than you) having such an interest.
If all amounts are at risk in this business,
check box 37a and enter your loss on line
36. But if you checked the “No” box on line
E, you may need to complete Form 8582 to
figure your allowable loss to enter on line
36. See the Instructions for Form 8582.
If you checked box 37b, see Form 6198
to determine the amount of your deductible
loss and enter that amount on line 36. But if
you checked the “No” box on line E, your
loss may be further limited. See the Instructions for Form 8582. If your at-risk amount
is zero or less, enter -0- on line 36. Be sure
to attach Form 6198 to your return. If you
checked box 37b and you do not attach
Form 6198, the processing of your tax return may be delayed.
Any loss from this activity not allowed
for 2005 because of the at-risk rules is
treated as a deduction allocable to the activity in 2006.
For details, see Pub. 925 and the
Instructions for Form 6198.

of accounting, and for rules that require
certain costs to be capitalized or included in
inventory.

Lines 39a Through 41c
See the instructions for lines 5a through 7c
that begin on page F-2.

Line 44
See the instructions for line 10 on page F-3.
Paperwork Reduction Act Notice. We ask

for the information 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 are not 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 records relating to a form
or its instructions must be retained as long
as their contents may become material in
the administration of any Internal Revenue
law. Generally, tax returns and return information are confidential, as required by section 6103.
The time needed to complete and file
this form will vary depending on individual
circumstances. The estimated burden for
individual taxpayers filing this form is included in the estimates 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 numbers 1545 – 1975
and 1545 – 1976 and is shown below.
Recordkeeping . . . . . . . . .

7 hr., 5 min.

Learning about the law or
the form . . . . . . . . . . . . . .

1 hr., 2 min.

Preparing the form . . . . . . 2 hr., 52 min.

Part III. Farm
Income—Accrual
Method
If you use an accrual method, report farm
income when you earn it, not when you
receive it. Generally, 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

F-6

Copying, assembling, and
sending the form to the IRS

40 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.