Farm tax deductions: the Schedule F records to gather each year

Farm income comes from more places than sales. Schedule F is the form a farmer files with Form 1040 to report profit or loss from farming (IRS Publication 225). Before the deductions, the preparer needs every source of gross farm income, so the costs can be measured against it.

Sales records come first: grain elevator settlement sheets, sale barn statements, packer checks and a log of farmers market or direct sales. Then the forms. Government program payments, such as Conservation Reserve Program payments, are reported on Form 1099-G (IRS Publication 225). A commodity loan repaid at a lower world price also produces a Form 1099-G showing the market gain (IRS Publication 225).

Co-ops send their own form. Patronage dividends and per-unit retains arrive on Form 1099-PATR (IRS Publication 225). Custom work you did for neighbors with your own equipment is income too, and the Form 1099-MISC or 1099-NEC you receive for it goes in the same pile.

Size matters less than intent. A farm you run mostly for recreation and pleasure is an activity not for profit, and its income goes on Schedule 1 instead of Schedule F (IRS Publication 525). If the farm shows losses year after year, keep a business plan, a separate bank account and records of how you work to make it pay.

Operating costs are the bulk of farm deductions. Keep invoices with delivery dates for feed, seed, fertilizer, lime and chemicals. Add vet, breeding, custom hire and trucking bills, and the repairs on each machine. Small items count as well, such as ear tags, baler twine and fence posts bought at the farm store.

Prepaying in December needs care. Prepaid farm supplies are feed, seed, fertilizer and similar items paid for in one year but used in the next. If you use the cash method, the deduction for them in the year paid may be limited to 50% of your other deductible farm expenses (IRS Publication 225). Exceptions exist, so the preparer needs the invoice, the payment date and the date of delivery or use.

A combine, a grain bin or a pole barn is written off over time unless an election speeds it up. The 2025 law restored a 100% special depreciation allowance for qualified property acquired and placed in service after January 19, 2025 (IRS Publication 946). You may instead elect 40% for the first tax year ending after that date (IRS Publication 946).

Section 179 is the other fast route. A grain bin placed in service in 2025 falls under a $2,500,000 cap (IRS Publication 946). A tractor bought for the 2026 season falls under the 2026 cap of $2,560,000, which shrinks once that year’s purchases pass $4,090,000 (IRS Rev. Proc. 2025-32). Both routes are figured on Form 4562, so keep the bill of sale, the trade-in value and the date each machine was ready for field work.

Livestock are sorted too. Breeding, dairy and draft animals you sell go on Form 4797, not Schedule F (IRS Publication 225). For animals you bought, the preparer needs the purchase date and cost.

Selling land has its own new option. For tax years beginning after July 4, 2025, a sale of qualified farmland to a qualified farmer can let you elect to pay the tax on the gain in four equal annual installments (IRS Publication 225). Keep the closing statement, the Form 1099-S from the closing and the buyer’s farming details for that election.

A farm pickup is used for everything, and logging every trip is hard. Pub 225 offers a shortcut. You can claim 75% of the use of a car or light truck as business use without allocation records, if you used it most of the normal business day directly in farming (IRS Publication 225). You pick that method in the first year the truck is placed in service and cannot switch later, so last year’s Schedule F shows which one you are on (IRS Publication 225). For example, a truck that hauls feed, checks cattle and runs to the parts store all day fits the shortcut. A second car driven mostly to town does not.

Fuel used on the farm for farming purposes is exempt from federal excise tax, so you can claim a credit for the tax paid on it (IRS Publication 510). The credit is claimed on Form 4136 (IRS Publication 225). Keep fuel receipts with the gallons bought and a note of which went into tractors and field equipment.

Farm employees are reported on a different return from other employers. Social security, Medicare and withheld income tax for farm workers go on Form 943 (IRS Publication 225). Keep the Forms 943, W-2 and W-3 you filed, and the payroll records behind them.

Custom operators work another way. The neighbor who combines your beans or the crew that bales your hay is a contractor, not a farm employee. Collect a Form W-9 at the first job; for custom work you pay for in 2026, a Form 1099-NEC is due once one operator’s total reaches $2,000 (Form 1099-NEC instructions).

A bad year can shift income. If you use the cash method, you may be able to postpone reporting crop insurance proceeds until the year after the damage, when conditions are met (IRS Publication 225). Keep the claim papers with the date the crop was damaged.

A good year can be smoothed. Farm income averaging is an election that taxes part of this year’s farm income at the rates of the 3 prior years, figured on Schedule J (IRS Publication 225). That needs the returns for those three base years, so keep them handy.

Qualified farmers also get their own estimated tax schedule. If at least two-thirds of your gross income is from farming, you can skip estimated tax for 2025 by filing and paying in full by March 2, 2026 (IRS Publication 225). The other choice is a single payment by January 15, 2026 (IRS Publication 225). A farmer under the two-thirds line follows the general estimated tax rules instead, with quarterly payments (IRS Publication 225). Those dates are in the self-employed checklist.

• IRS Publication 225: Farm income forms, the prepaid supplies limit, the 75% vehicle rule, Form 943, crop insurance timing, Schedule J, the section 1062 farmland installment election and the qualified farmer estimated tax rules.
• IRS Publication 525: Income from an activity not for profit, such as a farm run mostly for recreation, is reported on Schedule 1.
• Schedule E instructions: Crop-share rent goes on Form 4835 when the landowner did not materially participate.
• IRS Publication 946: 100% special depreciation for property acquired after January 19, 2025, the 40% election, and the $2,500,000 Section 179 limit for 2025.
• IRS Rev. Proc. 2025-32: For tax years beginning in 2026, the Section 179 limit is $2,560,000, reduced once property placed in service exceeds $4,090,000.
• IRS Publication 510: Fuel used on a farm for farming purposes is a nontaxable use eligible for a credit.
• Form 1099-NEC instructions: The reporting threshold rose to $2,000 for tax years beginning after 2025.