Schedule F – Profit/Loss from Farming Continued page 3

Crop Shares

Rents received as crop share are included in income in the year the crop shares are reduced to money, whether the cash or accrual method is used.

Crop shares used to feed livestock – crop share received by a landlord and fed to livestock are considered converted to money when fed to the livestock.  The FMV of the crop shares is included in income at that time.  At the same time, a business expense deduction, for the same amount, is taken for livestock feed.  Even though these two transactions cancel each other out, they may be necessary to determine net earnings from self-employment under the farm optional method.

Crop shares given to others – crop shares received as a landlord and given to others are considered converted to money when given.  The FMV of the crop shares is reported as income even though someone else receives payment for the crop shares.

Agriculutral Programs

Commodity Credit Corporation loans

CCC nonrecourse marketing assistance loan program

Conservation Reserve Program (CRP)

Crop insurance and disaster payments

Tobacco quota buyout program payments

Income Deferral-Livestock Sales

1-year deferral – A farmer can elect to postpone reporting the proceeds from the sale of livestock (including poultry) if more animals than usual business practice were sold due to weather-related conditions.  The gain from the sale of the additional animals may be included in income the year after the sale.

Qualifications for income tax deferral:

1)Principal business is farming

2)Cash method of accounting is used

3)Under normal conditions, the sale would not have occurred and

4)Weather-related conditions resulted in an area being designated as eligible for assistance by the federal government.

Making the election – Generally, the 1-year deferral under Section 451 is elected by attaching a statement to the return for the year of the sale.  However, farmers who qualify for the Section 451 election and who are also eligible to use the Section 1033 involuntary conversion rules to postpone the gain from weather-related sales of livestock in an area eligible for federal assistance can make the Section 451 election any time during the 4 years after the year the livestock are sold.

Livestock Sales – Where to Report

Schedule F

1)Raised livestock held primarily for sale

2)Livestock bought for resale

Form 4797

1)Animals not held primarily for sale

2)Livestock held for draft, breeding,  dairy or sporting purposes