Instructions for Form 1040 Schedule F |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
Filers of Forms 1041, 1065, and 1065-B.
Do not complete the block labeled “ Social security number (SSN).” Instead, enter your employer identification number (EIN) on
line D.
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.
If you use the cash method, check
box 1, labeled “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
Pub. 225.
If you use an accrual method, check
box 2, labeled “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 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 ever been 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 who does not take any active
part in managing the
business.
You need an employer identification number (EIN) only if you had a qualified retirement plan or were required to file an employment,
excise,
estate, trust, partnership, or alcohol, tobacco, and firearms tax return. If you need an EIN, see the
Instructions for Form SS-4. If you do not have an EIN, leave
line D blank.
Material participation.
For the definition of material participation for purposes of the passive activity rules, see the
instructions for Schedule C, line G, that begin on page C-2. 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 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.
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
Pub. 225 for details.
Chapter 11 bankruptcy.
If you were a debtor in a chapter 11 bankruptcy case during 2006, see page 22 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 received
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.
Form
|
|
Where to
report
|
|
1099-PATR
|
Line 5a
|
|
1099-A
|
Line 7b
|
|
1099-MISC for crop insurance
|
Line 8a
|
|
1099-G or CCC-1099-G
|
|
|
|
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 2006, you should receive
Form 1099-PATR. On
line 5a, show your total distributions from cooperatives. This includes patronage dividends, nonpatronage distributions, per-unit
retain
allocations, and redemption of nonqualified notices and per-unit retain allocations.
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.
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, 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.
Commodity Credit Corporation (CCC) loans.
Generally, you do not report CCC loan proceeds as income. However, if you 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 2006 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
Pub. 225 for details on the tax consequences of electing to report CCC loan proceeds as income or forfeiting CCC loans.
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
2006 was the year of damage, you can elect to include certain proceeds in income for
2007. To make this election, check the box on
line 8c and attach a statement to your return. See
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
2006, even if you elect to include them in income for
2007.
Enter on
line 8b the taxable amount of the proceeds you received in
2006. Do not include proceeds you elect to include in income for 2007.
Enter on
line 8d the amount, if any, of crop insurance proceeds you received in
2005 and elected to include in income for
2006.
Use this line to report income not shown on
lines 1 through 9, such as the following.
-
Illegal federal irrigation subsidies. See
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
January 31,
2007, showing the amount of debt canceled in
2006. However, certain solvent farmers can exclude canceled qualified farm indebtedness from income. To find out if you must
include any
cancellation of debt in income, see
Pub. 225.
-
State gasoline or fuel tax refund you received in
2006.
-
The amount of credit for federal tax paid on fuels claimed on your
2005 Form 1040.
-
The amount of credit for alcohol used as fuel that was claimed on
Form 6478.
-
The amount of biodiesel and renewable diesel fuels credit that was claimed on
Form 8864.
-
Any recapture of excess depreciation on a listed property, including any
section 179 expense deduction, if the business use percentage of that property decreased to
50% or less in
2006. Use
Form 4797 to figure the recapture. See the
instructions for Schedule C, line 13, on page C-4 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
Pub. 946 to figure the amount.
-
Any recapture of the deduction for clean-fuel vehicles used in your farming business and clean-fuel vehicle refueling property.
For details
on how to figure recapture, see
Pub. 535.
-
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 it 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.
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:
-
Producing any plant that has a preproductive period of
2 years or less,
-
Raising animals, or
-
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. See
Preproductive period expenses on page F-6 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 below.
Election to deduct certain preproductive period expenses.
If the preproductive period 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
4th 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 tax year for which you can make this election.
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).
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. Also, the alternative depreciation rules apply to property placed in
service in any tax year
your election is in effect. 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.
For details, see
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
Pub. 225.
You can deduct the actual expenses of running 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
2006 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 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 take the standard mileage rate, multiply the number of business miles driven by 44.5 cents. 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 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
Pub. 463.
Deductible soil and water conservation expenses generally are those that are paid to conserve soil and water or to prevent
erosion of land used for
farming. These expenses include (but are not limited to) the cost of leveling, grading and terracing, contour furrowing, the
construction, control,
and protection of diversion channels, drainage ditches, earthen dams, watercourses, outlets and ponds, the eradication of
brush, and the planting of
windbreaks.
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 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, to prepare land for center pivot irrigation systems,
or to clear land.
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
Pub. 225.
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.
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 2006 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
Pub. 946.
For details on the increased depreciation and section 179 deductions for qualified property in the GO Zone, see
Pub. 225.
See the Instructions for Form 4562 for information on when you must complete and attach Form 4562.
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, 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, for details.
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, which is 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.
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.
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.
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 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
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
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
2006 to banks or other financial institutions for which you received a
Form 1098 (or similar statement). 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
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
2006 for later years; include only the part that applies to
2006.
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 Employers Affected by Hurricane Katrina, Rita, or Wilma, line 6;
-
Form 8844, Empowerment Zone and Renewal Community Employment Credit, line 2; and
-
Form 8861, Welfare-to-Work Credit, 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.
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 for a one-participant plan. A one-participant plan is a plan that only covers you (or you and your spouse).
Form 5500.
File this form for a plan that is not a one-participant plan.
For details, see
Pub. 560.
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 Pub. 463 to figure your inclusion amount.
Enter on
line 26b amounts paid to rent or lease other property such as pasture or farmland.
Enter amounts you paid for repairs and maintenance of farm buildings, machinery, and equipment. You can also include what
you paid for tools of
short life or minimal cost, such as shovels and rakes.
Do not deduct repairs or maintenance on your home.
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 and any
federal
unemployment tax paid.
-
Federal highway use tax.
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.
Enter amounts you paid for gas, electricity, water, and other utilities for business use on 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.
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
2006. However, for the loss to be deductible, the amount “ at risk” must be increased.
Business start-up costs.
If your business began in
2006, 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. You can elect to amortize any remaining qualified business start-up costs over
180 months. For details, see
Pub. 225. For amortization that begins in
2006, 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 2006. This limit is increased for small timber producers with qualified timber property located in the GO Zone, the Rita
GO Zone, or the Wilma
GO Zone. For GO Zone information, see
Pub. 4492.
You can elect to amortize the remaining costs over
84 months.
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 Pub. 225. For amortization that begins in
2006, you must complete and attach Form 4562.
GO Zone clean-up costs.
You can deduct 50% of any qualified GO Zone clean-up costs paid or incurred in 2006 for the removal of debris from,
or the demolition of structures
on, real property located in the GO Zone that is used in your farming business. The rest of the GO Zone clean-up costs must
be capitalized. See
Pub. 4492 for the areas included in the GO Zone and the applicable dates for this deduction.
Legal and professional fees.
You can deduct on this line fees for tax advice related to your farming business and for the preparation of the tax
forms related to your farming
business.
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-5.
Preproductive period expenses.
If you had preproductive period expenses in
2006 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
Pub. 225.
If line 34f is a negative amount, subtract the amount on line 34f from the total of lines 12 through 34e. Enter the result
on line 35.
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
Schedule F, 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 1. 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).
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 66a and 66b, for details.
At-risk rules.
Generally, if you have a loss from a farming activity and amounts invested 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) 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, see
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 2006 because of the at-risk rules is treated as a deduction allocable
to the activity in 2007.
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 this method. See
Pub. 225 for exceptions, inventory methods, how to change methods of accounting, and for 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 2006, see page 22 of the instructions for Form 1040 and
page SE-2 of the instructions
for Schedule SE (Form 1040).
See the
instructions for lines 5a through 7c that begin on page F-2.
See the
instructions for line 10 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.
Previous | Index | Next
2006 Instructions Main | 2006 Tax Help Archives | Tax Help Archives Main | Home
|
|
|