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Frequently Asked Questions:

What are the tax consequences of paying or collecting rent from a farm lease?

Farm landlords who are not involved in the farm operation are subject to income tax on their rental income. Landowners who “materially participate” in the farming operation must include the rental income as earnings that are subject to self-employment tax. According to the 2014 IRS Farmer’s Tax Guide, the test of whether a landowner “materially participates” is if the arrangement with a tenant specifies the Landowner’s participation and s/he meets certain criteria demonstrating that participation.

Farm tenants can generally deduct rent paid on their Schedule F (the IRS form that itemizes farm income and expenses). However, if any part of that rent is considered payment toward a purchase of the farm (i.e., in a lease-to-own provision in the lease), that part might be considered a conditional sales contract, not rent, and is treated differently by the IRS.

Posted in: Rent and Other Consideration