For those who cash rent crop land

[kl9]

Assuming you own the land you rent out, can you claim material participation in the farming activity if you are responsible for things like mowing field edges and some misc spraying activities. This would allow you to deduct all expenses from your total income, not just your passive income. Thoughts anyone?

From what I've read you would have to do this for a total of 100 hours per tax year.

 

[Boll Weevil]

I do, but also spend way more time in both row crop farming and timber management than 100 hours per tax year. I'm not certain of the time commitment but it might be best to consult a tax professional to confirm.

 

[j-bird]

Yep.

As it was explained to me - it's a business. You simply have income to that business once or twice a year (your rental check) but you have expenses of that business all year long. Simply track those expenses (materials, parts, fuel, chemicals, taxes, insurance, anything to support the business) and that all gets figured against the income......what is left is profit and that should be what you pay taxes against.

Double check with who ever prepares your taxes or a tax professional.....but that was the gist of it as I understand it. IF your not showing profit.....then things get tricky.....then you have to worry about them calling it a "hobby" and then things can get ugly.

I have never been asked to record/track my time.

 

[kl9]

Yep.

As it was explained to me - it's a business. You simply have income to that business once or twice a year (your rental check) but you have expenses of that business all year long. Simply track those expenses (materials, parts, fuel, chemicals, taxes, insurance, anything to support the business) and that all gets figured against the income......what is left is profit and that should be what you pay taxes against.

Double check with who ever prepares your taxes or a tax professional.....but that was the gist of it as I understand it. IF your not showing profit.....then things get tricky.....then you have to worry about them calling it a "hobby" and then things can get ugly.

I have never been asked to record/track my time.

Our situation would definitely be a loss, not a profit. And your hobby vs business statement is basically what I'm trying to navigate.

 

[Boll Weevil]

IF your not showing profit.....then things get tricky.....then you have to worry about them calling it a "hobby" and then things can get ugly.

Annual recurring revenue and/or profit with a timber farm is quite different than row crops. For example, a pine plantation on a 25-30 year rotation may only see revenue a few times during the life of the stand in terms of thinning or final harvest income; hardwood stands will have an even longer rotation. In the meantime, management, maintenance, and operating costs occur annually. The row crop income for my farm is indeed annual-recurring...timber on the other hand is not.

 

[bwoods11]

My father in law is an accountant and I would say the most knowledgeable (tax guy) I have ever met. We write off all expenses on the land, (mowing, maintenance, fencing, mileage to and from the farm)...expenses are then deducted from income from CRP/cash rent.

Property taxes, interest paid, insurance can also be deducted. Depreciation from buildings.

.

 

[Weasel]

My father in law is an accountant and I would say the most knowledgeable (tax guy) I have ever met. We write off all expenses on the land, (mowing, maintenance, fencing, mileage to and from the farm)...expenses are then deducted from income from CRP/cash rent.

Property taxes, interest paid, insurance can also be deducted. Depreciation from buildings.

.

Do you show a loss or profit bwoods?

 

[Bill]

If you do, don't let your account atart a depreciation schedule on everything. Or at least talk to him about why, what and its implications down the road.

My guy started depreciating this like my tractor, planter and the land itself. I made him stop. Great for the current tax year but it lowers your cost basis when you go to sell and then you pay taxes on the profit from those items.

I know a guy that owned an excavation company. He couldn't keep it going during the Economic down turn.
He was purple mad when he sold Some equiptment that his accountant had depreciated to $0 and he owed big taxes on all that profit.

 

[bwoods11]

I show a loss on some of my farm yes, and I have never been audited (Thank the Lord).

 

[Redonthehead]

I think your renter is slackin off. My son rents farmland and mows the roads and field edges for his landlords. That's just what is done around here.

 

[JFK52]

Consult a competent tax professional as was previously mentioned. Everyone's tax situation is unique. Some aspects of the tax laws also change from year to year. I have used the same accountant for the past 44 years. I would not even attempt to do my own taxes.
I never heard the "100 hours per year" requirement. Where did you see or read that information?
I am selling seeds from my prairie plants this season for an income source. I might also harvest some of my soy bean fields to show income. I rent out a 12 acre field also.
To the IRS, the real differentiation is whether your farm is a "hobby" versus a "business". My accountant advised me that the IRS is taking a closer look at farm operations.

 

[j-bird]

I think I may have misread the OP.

I think you need a good tax professional.

Based on some of the terms you listed in your original post - I did some digging and I think you may need the address below to at least figure our what some of this stuff is. The more I read on this site below the more I think you are not going to like Mr. IRS. i realize it's a web site and that doesn't mean squat, but I don't know where your getting your information from now. Get the advise from a tax professional, and good luck.

http://thismatter.com/money/tax/material-participation.htm
http://thismatter.com/money/tax/passive-activity-rules.htm

 

[kl9]

My father in law is an accountant and I would say the most knowledgeable (tax guy) I have ever met. We write off all expenses on the land, (mowing, maintenance, fencing, mileage to and from the farm)...expenses are then deducted from income from CRP/cash rent.

Property taxes, interest paid, insurance can also be deducted. Depreciation from buildings.

.

I know you can deduct the expenses from your passive income, like cash rent and CRP. It's deducting those expenses from another main source of income that I'm curious about.

 

[kl9]

Consult a competent tax professional as was previously mentioned. Everyone's tax situation is unique. Some aspects of the tax laws also change from year to year. I have used the same accountant for the past 44 years. I would not even attempt to do my own taxes.
I never heard the "100 hours per year" requirement. Where did you see or read that information?
I am selling seeds from my prairie plants this season for an income source. I might also harvest some of my soy bean fields to show income. I rent out a 12 acre field also.
To the IRS, the real differentiation is whether your farm is a "hobby" versus a "business". My accountant advised me that the IRS is taking a closer look at farm operations.

100 hours is a qualifier for "material participation". If you materially participate in farming activity you can deduct all expenses from your total global revenue, not just your farm revenues.

 

[MoBuckChaser]

A guy can write off anything they want, but will the IRS, during a audit except it, is the question.

We own farms in several states, I write off as much as possible without throwing up any red flags to trigger an audit.

 

[kl9]

A guy can write off anything they want, but will the IRS, during a audit except it, is the question.

We own farms in several states, I write off as much as possible without throwing up any red flags to trigger an audit.

But is farming your main source of income? Our problem is our main source of income has nothing to do with farming. So I'm wondering if we can be involved to an extent in which we could claim material participation and then be able to deduct all our farm land expenses from total (global) revenue.

 

[MoBuckChaser]

I Farm, have 39 years in the carpenters union, I buy and sell properties, rent out tillable ground, and now run a growing seed and chemical business here in MN. I write everything off I can, when I can, interest, mileage equipment, off road fuel, cell phone, electric, and internet service, etc-etc.

If the IRS allows the deduction, I take it! I do have a very good CPA that follows the ever changing laws! But he charges for his services. Be prepared to spend some money on a good CPA, to save more money in the long run!

 

[bwoods11]

I Farm, have 39 years in the carpenters union, I buy and sell properties, rent out tillable ground, and now run a growing seed and chemical business here in MN. I write everything off I can, when I can, interest, mileage equipment, off road fuel, cell phone, electric, and internet service, etc-etc.

If the IRS allows the deduction, I take it! I do have a very good CPA that follows the ever changing laws! But he charges for his services. Be prepared to spend some money on a good CPA, to save more money in the long run!

Yes sir, and your chances of an audit are much less if you use a reputable CPA.

 

[Weasel]

As a freelance writer, often my expenses to have experiences to write about cost way more than what I get compensated. It's not a hobby, I use the extra income to supplement our household income. I was told too many years showing a loss could lead the IRS to consider it a "hobby" business. I was audited twice in four years. Both times they ended up owing me money because I didn't write off 100% of my expenses. Last audit I explained my situation to the IRS agent, saying a $500 payment for an article about a western hunt generates quite a few expenses well above that income. She said everything I was doing was legitimate and I even got a refund for the receipts I had in the file that I didn't write off.

It's all very confusing. A simple flat tax would simplify everything & generate more tax income because you would get tax from everyone that buys a product, drug dealers, prostitutes & every other under the table cash worker as well.

 

[MoBuckChaser]

A flat tax is great if the only investment in your profession is a pencil.

For all the people investing large sums of money to start a business it wouldn't work, and why it aint in place!