Profit or Loss From Farming

2009 Instructions for Schedule F (Form 1040), Profit or Loss From Farming

Purpose: This is the first circulated draft of the 2009 Instructions for Schedule F (Form
1040) for your review and comments. Changes are listed below.
TPCC Meeting: None, but one can be arranged if requested.
Form: The 2009 Schedule F (Form 1040) was circulated on May 13, 2009, and can be
viewed by clicking on the following link:
http://linprod1.publish.no.irs.gov/tfpcirc/circ/2009/circ_09f1040(schf)_20090513070849.p
df

Prior Revisions: The 2008 Instructions for Schedule F (Form 1040) can be viewed by
clicking on the following link: http://www.irs.gov/pub/irs-pdf/i1040sf.pdf
Other Products: Circulations of draft tax forms, instructions, notices, and publications
are posted at: http://taxforms.web.irs.gov/Circulations/index.htm
Comments: Please email, fax, call, or mail any comments by August 14, 2009.

Major Changes to the
2009 Instructions for Schedule F (Form 1040)
All applicable dates, Schedule F line references, and instruction page references are
updated.
Page F-1
• We removed all prior year “What’s New” items.
•

We added the following “What’s New” items.
1. Certain single member LLCs are required to obtain an EIN issued to the LLC
(instead of the LLC’s owner) in order to file employment or certain excise tax
returns. Treas. Reg. 301.7701-2(c)(2)(iv) & (v).
2. The increased section 179 deduction is extended through 2009. PL 111-5, Sec.
1202.
3. The special bonus depreciation is extended through 2009. PL 111-5, Sec. 1201.
4. Farmers can now elect to deduct endangered species recovery expenses. PL
110-246, Sec. 15303.
5. The 3 year GDS recovery period now applies to all race horses (regardless of
age). PL 110-246, Sec. 15344.
6. The recovery period for certain machinery and equipment used in a farming
business is 5 years under the GDS (10 years for the ADS). PL 110-343, Div. C,
Sec. 505.

•

Under “Other Schedules and Forms You May Have to File,” we made the
following changes.
1. We removed the list items for the 2 credit forms (8910 and 8911) and replaced
them with a list item for Form 3800. Historically, the Schedule F instructions did
not mention any of the many credits available to farmers in this list of schedules
and forms. Rather than add list items for certain new credit forms that are added
each year, we thought it better to mention the Form 3800, which also provides a
list of many of the business credits that may apply to farmers.
2. We added list items for Forms 6198 and 8582, because these forms are more
directly related to the Schedule F and are actually discussed in these
instructions.
3. We added a paragraph explaining that a single-member LLC is generally
disregarded as an entity separate from its owner for federal income tax purposes,
in which case, Schedule F should be filed. However, farmers may elect to treat
the LLC as a corporation. This paragraph is similar to one that appears in the
instructions for Schedule C. Treas. Reg. 301.7701-3(b).

Page F-2
We revised the instructions for “Line D” to clarify the proper EIN to enter. Request from
SE:S:E:EP. Some taxpayers have been entering on line D the EINs from Forms 1099MISC that they received. We also added instructions for “Single member LLCs,” to
clarify which EIN to enter on line D, in cases where these entities have been issued two
EINs (one issued to the LLC, to be used when filing employment and certain excise tax
returns, and one issued to the LLC owner, to be used when filing all other tax and
information returns). Email request received from *[email protected].
Page F-5
• Under “Line 12,” we updated the standard mileage rate for 2009. Rev. Proc. 200872, Section 5.
•

We updated the instructions for “Line 14” to include expenses for endangered
species recovery. PL 110-246, Sec. 15303.

Page F-6
We made the following changes under “Line 24.”
1. In the second bullet, we deleted the reference to line 2 of Form 5884-A. The
employee retention credit does not apply for 2009. PL 110-343, Div. C, Sec.
702.
2. We deleted the bullet for Form 8861. The welfare to work credit on Form 8861 is
only available for two years of wages for employees hired before January 1,
2007. PL 109-432, Sec. 105.
3. We added a bullet for new Form 8932. PL 110-245, Sec. 111.

FROM:

Email:

Phone:

Robyn Magruder-Matthews

[email protected]

202-283-3725

Fax:
202-283-4544

Room:

Date:
7/22/2009

NCFB
C-347

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Page 1 of 7 of 2009 Instructions for Schedule F

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Department of the Treasury
Internal Revenue Service

2009 Instructions for Schedule F
Use Schedule F (Form 1040) to report farm income and expenses. File it with Form 1040,
1040NR, 1041, 1065, or 1065-B.
Profit or Loss
Your farming 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
From Farming
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.

What’s New
Section 179 deduction increased. The dollar limit for the section 179 deduction to
expense certain depreciable business property is $250,000 for property placed in
service during 2009. This limit will be reduced when the total cost of section 179
property placed in service during the tax
year exceeds $800,000. For more information, see Pub. 946.
Single-member limited liability companies
(LLCs) with employees. Single-member

LLCs that are disregarded as entities separate from their owner for federal income
tax purposes are now required to file employment tax returns (effective for wages
paid on or after January 1, 2009) using the
LLC’s name and employer identification
number (EIN) rather than the LLC owner’s
name and EIN. This new requirement to
use the LLC’s name and EIN also went into
effect for certain excise tax returns beginning in 2008. Single-member LLCs not
previously needing an EIN may now need
to obtain an EIN for the payment and reporting of these taxes. For more information, see the Instructions for Form SS-4
(Rev. January 2009).
Deduction for endangered species recovery
expenses. You can choose to deduct ex-

penses you paid for endangered species recovery, if the expenses are consistent with a
recovery plan approved pursuant to the Endangered Species Act of 1973 for the area
in which your land is located. See the instructions for line 14.
Depreciation of race horses. The recovery
period under the General Depreciation System (GDS) is 3 years for all race horses
(regardless of age) placed in service after
December 31, 2008. For more information,
see chapter 7 of Pub. 225.
Depreciation of machinery and equipment.

The recovery period for any machinery or
equipment used in a farming business
(other than any grain bin, cotton ginning
asset, fence, or other land improvement) is
5 years under the GDS and 10 years under
the Alternative Depreciation System
(ADS). The original use of the machinery
or equipment must begin with the taxpayer
after December 31, 2008, and the machin-

ery or equipment must be placed in service
before January 1, 2010. For more information, see chapter 7 of Pub. 225.
Special depreciation allowance. For qualifying property acquired and placed in service in 2009, you may be able to take a
depreciation deduction equal to 50% of the
adjusted basis of the property. Qualifying
property includes certain property with a
recovery period of 20 years or less, certain
computer software, water utility property,
or qualified leasehold improvements. For
more information, see Pub. 946.

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. However, report on Schedule F,
line 10, pasture income received from taking care of someone else’s livestock. Also
use Schedule E, Part I, to report farm rental
income and expenses of a trust or estate
based on crops or livestock produced by a
tenant.
• 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 3800 to claim any of the general
business credits.
• Form 4562 to claim depreciation (including the special allowance) on assets
placed in service in 2009, to claim amortization that began in 2009, 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

F-1
Cat. No. 17152R

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 are an individual who did
not materially participate in the management or operation of a farm. This income is
not 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 are not at risk.
• Form 8582 to figure your deductible
loss from passive activities.
• Form 8824 to report like-kind exchanges.
• Form 8903 to take a deduction for income from domestic production activities.
Single-member limited liability company
(LLC). Generally, a single-member do-

mestic LLC is not 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. However, you can elect to treat
a domestic 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.
Information returns. You may have to file

information returns for wages paid to employees, certain payments of fees and other
nonemployee compensation, interest, rents,
royalties, real estate transactions, 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
2009 General Instructions for Forms 1099,
1098, 3921, 3922, 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 2009, you must file Form
8886 to disclose information if your federal
income tax liability is affected by your par-

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ticipation 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 on page C-2 of the
instructions for Schedule C.

Husband-Wife Farm
If you and your spouse jointly own and
operate a farm as an unincorporated business and share in the profits and losses, you
are partners in a partnership whether or not
you have a formal partnership agreement.
File Form 1065 instead of Schedule F.

Exception —Qualified Joint
Venture
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 make a
joint election to be treated as a qualified
joint venture instead of a partnership. For
an explanation of “material participation,”
see the instructions for Schedule C, line G,
on page C-3, and the instructions for line E
on this page.
Making the election. To make this election, you must divide all items of income,
gain, loss, deduction, and credit attributable
to the farming business between you and
your spouse in accordance with your respective interests in the venture. Each of
you must file a separate Schedule F. On
each line of your separate Schedule F, you
must enter your share of the applicable income, deduction, or loss. Each of you must
also file a separate Schedule SE to pay
self-employment tax, as applicable.

As long as you remain qualified, your
election cannot be revoked without IRS
consent.
For more information, see Exception — Qualified Joint Venture on page C-2
of the instructions for Schedule C.

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, the income and deductions
are reported 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 qualifying joint venture, see
Exception — Qualified Joint Venture on
this page.
The only states with community property laws are Arizona, California, Idaho,
Louisiana, Nevada, New Mexico, Texas,
Washington, and Wisconsin. A change in
your reporting position will be treated as a
conversion of the entity.

Estimated Tax
If you had to make estimated tax payments
for 2009 and you underpaid your estimated
tax, you will not be charged a penalty if
both of the following apply.
• Your gross farming or fishing income
for 2008 or 2009 is at least two-thirds of
your gross income.
• You file your 2009 tax return and pay
the tax due by March 1, 2010.
For details, see chapter 15 of Pub. 225.

Specific Instructions
Filers of Forms 1041, 1065, and 1065-B.

Do not complete the block labeled “Social
security number (SSN).” Instead, enter the
employer identification number (EIN) issued to the estate, trust, or partnership 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.

who does not take any active part in managing the business.

Line D
Enter on line D the employer identification
number (EIN) that was issued to you on
Form SS-4. Do not enter your SSN. Do not
enter another taxpayer’s EIN (for example,
from any Forms 1099-MISC that you received). If you do not 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, tobacco,
or firearms returns, or are a payer of gambling winnings. If you need an EIN, see the
Instructions for Form SS-4.
Single-member LLCs. If you are the sole
owner of an LLC that is not treated as a
separate entity for federal income tax purposes, 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 do not have such
an EIN, leave line D blank. Do not enter on
line D the EIN issued to the LLC.
Filers of Forms 1041, 1065, and 1065-B.

Enter on line D the EIN issued to the estate,
trust, or partnership.

Line C
If you use the cash method, check box 1,
“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 chapter 2 of Pub. 225.
If you use an accrual method, check box
2, “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.
Farming syndicates. 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 at
any time been offered 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

F-2

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, on page C-3. 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 he or she
actively 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 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.

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Lines 5a and 5b

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
weather-related 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 chapter 3 of Pub. 225 for details.
Chapter 11 bankruptcy. If you were a
debtor in a chapter 11 bankruptcy case during 2009, see page 21 in the instructions for
Form 1040 and page SE-2 of the instructions for Schedule SE (Form 1040).
Forms 1099 or CCC-1099-G. If you re-

ceived 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.”

If you received distributions from a cooperative in 2009, you should receive a Form
1099-PATR. On line 5a, show your total
distributions from cooperatives. This includes patronage dividends, 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 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. Because 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 and 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 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 below). 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.

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

loan proceeds as income. However, if you

F-3

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 2009 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. This
amount may be reported to you on Form
1099-A.
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 chapter 3 of 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 2009
was the year of damage, you can elect to
include certain proceeds in income for
2010. To make this election, check the box
on line 8c 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.
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 2009, even if you
elect to include them in income for 2010.
Enter on line 8b the taxable amount of
the proceeds you received in 2009. Do not
include proceeds you elect to include in
income for 2010.
Enter on line 8d the amount, if any, of
crop insurance proceeds you received in
2008 and elected to include in income for
2009.

Line 10
Use this line to report income not shown on
lines 1 through 9, such as the following.
• Illegal federal irrigation subsidies. See
chapter 3 of 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 institution, 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 February 1, 2010, showing the

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amount of debt canceled in 2009. 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 2009.
• The amount of credit for alcohol and
cellulosic biofuel fuels claimed on Form
6478.
• The amount of credit for biodiesel and
renewable diesel fuels claimed on Form
8864.
• The amount of credit for federal tax
paid on fuels claimed on your 2008 Form
1040. For more information on including
the credit in income, see chapter 2 of Pub.
510.
• Any recapture of excess depreciation
on any listed property, including any section 179 expense deduction, if the business
use percentage of that property decreased
to 50% or less in 2009. Use Part IV of Form
4797 to figure the recapture. See the instructions for Schedule C, line 13, on page
C-5 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 for
clean-fuel vehicles and clean-fuel vehicle
refueling property used in your farming
business. For details on how to figure recapture, see Regulations section 1.179A-1.
• Any income from breeding fees, or
fees from renting teams, machinery, or
land.
• 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 the amount of the loss 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.
• 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) do not
apply to tax shelters, farming
syndicates, partnerships, or corporations required to use the accrual method of accounting under section
447 or 448(a)(3).
If you capitalize your expenses, do not
reduce your deductions on lines 12 through
34e by the capitalized expenses. Instead,
enter the total amount capitalized in parentheses on line 34f and enter “263A” in the
space to the left of the total. See Preproductive period expenses on page F-7 for details.
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
next.
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 fourth tax year beginning with
the tax year you planted them in their permanent grove. You are treated as having
made the election by deducting the
preproductive period expenses in the first

F-4

tax year for which you can make this election and by applying the special rules, discussed later on this page.

In the case of a partnership or S
corporation, the election must
be made by the partner, shareholder, or member. This election cannot 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 capitalization rules. You cannot
revoke this election without IRS consent.
Special rules. 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, 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. 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 chapter 4
of Pub. 225.
Whether or not this 50% limit applies,
your expenses for livestock feed paid during the year but consumed in the later year,
may be subject to the rules explained later
in the line 18 instructions.

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Line 12
You can deduct the actual expenses of operating 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 five or more 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 2009 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 (except the period, if any, before
1998).
If you take the standard mileage rate:
• Multiply the number of business miles
driven by 55 cents, and
• 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 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 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 chapter 4 of Pub. 463.

Line 14
Deductible conservation expenses generally are those that are paid to conserve soil
and water for land used in farming, or to
prevent erosion of land used for farming, or
for endangered species recovery. These expenses include (but are not limited to) costs
for the following.
• The treatment or movement of earth,
such as leveling, grading, conditioning, terracing, contour furrowing, and the restoration 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 Endangered
Species Act of 1973.
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 or a recovery plan approved
pursuant to the Endangered Species Act 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 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, or to prepare land for center pivot irrigation
systems.
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 chapter 5 of Pub. 225.

Line 15
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.

Line 16
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,
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 2009 for use in your
farming business. The section 179 election
is made on Form 4562.
For information about depreciation and
the section 179 deduction, see 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 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.
Contributions you made on your behalf
as a self-employed person to an accident
and health plan or for group-term life insurance are not deductible on Schedule F.
However, you may be able to deduct on
Form 1040, line 29 (or on Form 1040NR,

F-5

line 28), 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, or Form
1040NR, line 28, 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 when paid, subject to the
overall limit for Prepaid farm supplies explained on page F-4. If all of the above do
not apply, you can deduct the prepaid feed
only in the year it is consumed.

Line 20
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 22
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
due to sickness or disability are not deductible. For details, see chapter 6 of Pub. 535.

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 (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.
Generally, you allocate interest expense
by tracing how the proceeds of the loan are
used. See chapter 4 of 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 chapter 4 of 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 2009 to banks
or other financial institutions for which you
received a Form 1098 (or similar state-

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ment). 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 chapter 4 of
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
2009 for later years; include only the part
that applies to 2009.

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, Credits for Affected
Midwestern Disaster Area Employers, line
6;
• Form 8844, Empowerment Zone and
Renewal Community Employment Credit,
line 2;
• Form 8845, Indian Employment
Credit, line 4; and
• Form 8932, Credit for Employer Differential Wage Payments, 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 (or on Form 1040NR,
line 27), 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-EZ. File this form if you have a

one-participant retirement plan that meets
certain requirements. A one-participant
plan is a plan that covers only you (or you
and your spouse).
Form 5500. File this form for a plan that
does not meet the requirements for filing
Form 5500-EZ.
For details, see Pub. 560.

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 chapter 4 of Pub. 463 to figure this
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 incidental repairs and maintenance of farm buildings,
machinery, and equipment that do not add
to the property’s value or appreciably prolong its life.
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.
• Federal unemployment tax.
• Federal highway use tax.
• Contributions to state unemployment
insurance fund or disability benefit fund if
they are considered taxes under state law.
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, and other utilities for business use on

F-6

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
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 2009. However, for the loss to be
deductible, the amount “at risk” must be
increased.
Bad debts. See chapter 10 of Pub. 535.
Business start-up costs. If your farming
business began in 2009, you can elect to
deduct up to $5,000 of certain business
start-up costs. This limit is reduced (but not
below zero) by the amount by which your
start-up costs exceed $50,000. Your remaining start-up costs can be amortized
over a 180 month period, beginning with
the month the farming business began. For
details, see chapters 4 and 7 of Pub. 225.
For amortization that begins in 2009, 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.
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 2009.
You can elect to amortize the remaining
costs over 84 months. For amortization that
begins in 2009, you must complete and attach Form 4562.
The amortization election does not apply to trusts and the expense election does
not 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
necessary expenses directly related to your
farming business. Include fees for tax advice and for the preparation of tax forms
related to your farming business. Also include expenses incurred in resolving asserted tax deficiencies related to your
farming 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.

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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-6.
Preproductive period expenses. If you had
preproductive period expenses in 2009 that
you are capitalizing, enter the total of these
expenses in parentheses on line 34f and
enter “263A” in the space to the left of the
total.
For details, see page F-4, Capitalizing
costs of property, and Uniform Capitalization Rules in chapter 6 of Pub. 225.

Line 35
If line 34f is a negative amount, subtract it
from the total of lines 12 through 34e. Enter
the result on line 35.

Line 36
If you have a loss, the amount of loss you
can deduct this year may be limited. Individuals, estates, and trusts must complete
line 37 before entering the loss on line 36.
If you checked the “No” box on 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 1a. Nonresident aliens — enter
the net profit or deductible loss here and on
Form 1040NR, line 19. Estates and
trusts — enter the net profit or deductible
loss here and on Form 1041, line 6. Partnerships — do not complete line 37; instead,
stop here and enter the profit or loss on this
line and on Form 1065, line 5 (or Form
1065-B, line 7).
Community income. If you and your
spouse had community income and are filing separate returns, see page SE-2 of the
instructions for Schedule SE before figuring self-employment tax.
Earned income credit. 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 64a and 64b, for details.
Conservation Reserve Program (CRP)
payments. If you received social security

retirement or disability benefits in addition
to CRP payments, the CRP payments are
not subject to self-employment tax. You
will deduct these payments from your net
farm profit or loss on line 1b of Schedule
SE. Do not make any adjustment on Schedule F.

Line 37
At-risk rules. Generally, if you have a loss
from a farming activity and amounts in-

vested in the activity for which you are not
at risk, you must 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 invested in this activity for which you are not
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 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)(C) to a
person (other than you) having such an interest.
Figuring your deductible loss. If all
amounts are at risk in this activity, check
box 37a. If you checked the “Yes” box on
line E, 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, first complete
Form 6198 to determine the amount of your
deductible loss. If you checked the “Yes”
box on line E, 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 2009 only because of the at-risk rules is
treated as a deduction allocable to the activity in 2010.
For details, see Pub. 925 and the
Instructions for Form 6198.

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

F-7
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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.
Chapter 11 bankruptcy. If you were a
debtor in a chapter 11 bankruptcy case during 2009, see page 21 of the instructions for
Form 1040 and page SE-2 of the instructions for Schedule SE (Form 1040).

Lines 39a Through 41c
See the instructions for lines 5a through 7c
on page F-3.

Line 44
See the instructions for line 10 that begin
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.
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.