Asked yesterday, no replies

[rjholmes]

Which form to use for farm rental on partnership return. Form 8825 is rental real estate and does not seem as appropriate as the 4835 on form 1040. If Sch F, will IRS automatically be looking for SE tax on any gain?

[Nashville]

Form 4835

Fellow Tennessean, I'll give it a shot.

Form 4835 is the ancient "sharecropper" form, and is supposed to be used only for income and expenses related to someone working the farm on "shares." Landowner rents his tobacco allotment to someone, and when the tobacco is sold, the sharecropper gets 2/3 of the proceeds, and the landowner gets 1/3.

That type of thing is still done, but not like it used to be. I don't know where you live, but in my part of TN sharecropping is obsolete. I hear there is still some of it going on in West Tennessee with soybeans.

I have situations where farm income should not be subject to SE tax, such as landowners in nursing homes, absentee landowners or fiduciaries, etc. and I will use 4835 to report a rental where someone is working the farm at a fixed-price (rather than percentage of crop). I think the instructions still say the form can only be used for sharecropping, but I have not had a problem using it.

The alternative is to simply report Farm rent as a Schedule E property or Form 8825, which is not subject to self-employment tax. If you use Form 4835, the net income is going to end up on a schedule E anyway. The only difference is a reporting item at the bottom which calls for a reporting of Gross Income from Farming or Fishing. This special reporting does not affect the taxes, but I believe is collected by the IRS and forwarded on to the Dept of Commerce. Form 4835 will populate "Gross Income from Farming or Fishing", whereas Schedule E treatment will not.

The division of income retains its character as it passes through to partners. The K-1 should be able to segregate rental income (including farm rentals) such that the partners will not be assessed self-employment tax. I believe some distinction should be made as to whether the income is with active participation for non-recourse rules, but all of this flows through in character to the partners.

[DMICPA]

Farming participation

If the partner does not participate in the farming operations, this would be considered as passive and reporting on the 8825 would be appropriate. No SE tax here.

Usually I see the 4835 as a passive owner that gets a share of the harvest. Sometimes there are co-op dividends reported in their social security number. No SE tax here and on the individuals return, the 4835 flows to the schedule E.

[Black Bart]

Well,

Which form to use for farm rental on partnership return. Form 8825 is rental real estate and does not seem as appropriate as the 4835 on form 1040. If Sch F, will IRS automatically be looking for SE tax on any gain?

I don't claim to be an "A" student, but......checkin' out the back of the instruction page for Form 4835 I found this little gem: "Do not use Form 4835 if you were a/an: *Partnership or S corporation with rental income and expenses from crop and livestock shares -- instead report on Form 8825." Google it up and you'll see it.

So there; go, my son, and sin no more -- you gotta start readin' them instructions before you start puttin' your swing sets together. Cain't say I blame you though -- I prefer a quick and dirty answer here myself rather than sloggin' through all that muck.

[gkaiseril]

Prepare the partnership form and K-1's. You can use the Farm Rental Form to compute the income and expenses of the farm rental if it is a crop sharing rental or just treat it like a land and commercial building rental, but you may need to adjust depreciation for special livestock buildings.