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

IRS Form 1040 (Schedule F) – If you operate a farm or ranch as a sole proprietor, partnership, or qualified joint venture, IRS Schedule F (Form 1040)—officially titled Profit or Loss From Farming—is the key tax form for reporting your agricultural income and expenses. Farmers use this schedule to calculate net farm profit or loss, which flows to your Form 1040 and affects both income tax and self-employment tax.

For tax year 2025, accurate filing of Schedule F helps you claim valuable deductions, navigate special rules like crop insurance deferral and bonus depreciation, and stay compliant with IRS requirements. This guide, based on official IRS sources including the 2025 Schedule F form, instructions, and Publication 225 (Farmer’s Tax Guide), breaks everything down step by step.

Download the official 2025 form here: Schedule F (Form 1040) PDF.
Instructions PDF: Available on IRS.gov.

Who Needs to File Schedule F?

You must file Schedule F if you are engaged in farming for profit and report as:

  • A sole proprietor (including single-member LLCs)
  • A partner in a partnership (your share via K-1)
  • A qualified joint venture (spouses filing jointly who both materially participate)

Farming activities include raising livestock, dairy, poultry, fish, crops, fruits, vegetables, orchards, nurseries, plantations, ranches, and related operations. It also covers custom hire (machine work) and certain rentals if you materially participate.

Do not use Schedule F for:

  • Hobby farms (report on Schedule 1 or A; hobby loss rules apply)
  • Pure rental income without material participation (use Form 4835 or Schedule E)
  • Agricultural services (e.g., custom harvesting for others) — often Schedule C
  • Corporate farms (Form 1120 or 1120-S)

Material participation is key: You (or your spouse) must participate regularly, continuously, and substantially. Check “Yes” on line E of Schedule F if you meet IRS tests (e.g., 500 hours or prior-year participation rules for retirees/surviving spouses). Failure triggers passive activity loss limitations (Form 8582).

You may also need to file Form(s) 1099 if you paid $600+ to non-employees for services.

Cash vs. Accrual Accounting Methods

Choose your method consistently:

  • Cash method (most common for small farms) — Report income when received and expenses when paid. Complete Parts I and II.
  • Accrual method — Report income when earned and expenses when incurred. Complete Parts II, III, and line 9 of Part I.

Exceptions and limits:

  • Small business taxpayers (average annual gross receipts ≤ $31 million over prior 3 years, not a tax shelter) can generally use cash method.
  • Farming syndicates are restricted.
  • Prepaid supplies (feed, seed, etc.) have 50% deduction limits in some cases.

Indicate your method in Part I, line C.

Step-by-Step: How to Fill Out Schedule F (2025)?

Header Information:

  • Name, SSN, principal crop/activity (e.g., “Corn” or “Beef Cattle”), and 6-digit code from Part IV.
  • Accounting method, EIN (if applicable), material participation, and 1099 questions.

Part I: Farm Income (Cash Method)

Report:

  • Line 1: Sales of purchased livestock/resale items (gross profit after cost basis)
  • Line 2: Sales of raised livestock, produce, grains, etc.
  • Lines 3–4: Cooperative distributions (1099-PATR) and agricultural program payments (e.g., ARC, PLC)
  • Line 5: CCC loans (elect to report as income or treat as loan)
  • Line 6: Crop insurance proceeds and federal disaster payments (elect to defer to 2026 if damaged in 2025 and conditions met)
  • Line 7: Custom hire/machine work income
  • Line 8: Other income (fuel tax refunds, hedging, etc.)
  • Line 9: Gross farm income

For accrual method, use Part III to compute and enter on line 9.

Part II: Farm Expenses (Cash or Accrual)

Deduct ordinary and necessary business expenses (exclude personal/living costs). Key lines include:

  • 10: Car and truck expenses (standard mileage rate 70 cents per mile in 2025, or actual costs; attach Form 4562 if needed)
  • 11–13, 16–19, 25–28, 30–31: Chemicals, conservation, custom hire, feed, fertilizers, freight, fuel, repairs, seeds, supplies, utilities, veterinary
  • 14: Depreciation and Section 179 (see below)
  • 20–21: Insurance and interest (mortgage + other; business interest limits may apply via Form 8990)
  • 22: Hired labor (minus credits)
  • 24: Rent/lease of vehicles, machinery, or land
  • 32: Other expenses (advertising, legal fees, office supplies, etc.)

Total expenses on line 33; net profit/loss on line 34. For losses, check at-risk box on line 36.

Part III: Farm Income (Accrual Method Only)

Adjust for inventories (beginning + purchases – ending) to compute cost of goods sold.

Net farm profit or loss (line 34) transfers to Form 1040, Schedule 1. It is also used for self-employment tax on Schedule SE (unless exceptions apply) and may qualify for income averaging on Schedule J.

Common Deductible Farm Expenses and Tax Benefits

Schedule F allows broad deductions for:

  • Operating costs (seeds, feed, fertilizer, chemicals, fuel, veterinary)
  • Labor, benefits, pensions
  • Repairs, maintenance, storage, utilities
  • Insurance, interest, taxes (property, employment)
  • Rent, custom hire, conservation expenses (limited to 25% of gross farm income; excess carried forward)
  • Depreciation (MACRS; livestock, machinery, buildings, fences, etc.)

Major 2025 benefits:

  • Section 179: Up to $2,500,000 immediate expensing (phase-out over $4 million)
  • Bonus depreciation: 100% for qualified property placed in service after January 19, 2025 (including certain plants)
  • De minimis safe harbor for small tools/supplies
  • Business use of home (regular/exclusive; simplified or actual method)
  • Self-employed health insurance deduction (Schedule 1)

Publication 225 provides extensive examples and rules for inventory valuation, uniform capitalization (exempt for many small farms), and casualty losses.

Special Rules for Farmers

  • Crop insurance/disaster payments — Defer reporting if you meet the election rules.
  • At-risk rules — Losses limited to your investment at risk (Form 6198 if needed).
  • Passive loss rules — Apply if you do not materially participate.
  • Self-employment tax — Generally 15.3% on net earnings (Social Security up to wage base; Medicare unlimited). Farmers may qualify for optional methods or exclusions. Deduct half on Schedule 1.
  • NOLs and excess business losses — Special carryback rules for farming.
  • Qualified Business Income (QBI) deduction — Up to 20% possible (Form 8995).

Tax Tips to Maximize Benefits

  • Keep detailed records (receipts, mileage logs, inventories).
  • Elect deferrals (crop insurance, livestock sales in drought areas) strategically.
  • Maximize depreciation and Section 179 for equipment purchases.
  • Track prepaid expenses carefully to avoid limits.
  • Consider income averaging (Schedule J) if farm income fluctuates.
  • File estimated taxes (special rules for qualified farmers).

Common Mistakes to Avoid

  • Mixing personal and business expenses
  • Failing to apply at-risk or passive rules
  • Missing 1099 filing requirements
  • Incorrect inventory or accounting method changes
  • Overlooking conservation or reforestation deductions
  • Not attaching required forms (4562, 6198, etc.)

Resources and Next Steps

Farming taxes are complex and rules can change. This guide is for informational purposes only and is not tax advice. Always consult a qualified tax professional or the IRS for your specific situation. Proper use of Schedule F can significantly reduce your tax burden while ensuring compliance.

For the latest updates, visit IRS.gov/ScheduleF. File accurately and on time—your farm’s financial health depends on it!