Have a client that owns several acres of land which they let a cousin grow corn and soybeans on.They receive 1/4 of the net when the crops are sold.Client's part of the inc this year was $2800 and had a ag payment of $1200.Was wondering is the inc from the crops can be classed as rent instead of farm inc as the client has no say over the crop that are planted or havested.Grain company just send then a check for the 1/4 of the proceeds.
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Farm Rental
Yeah, there's no question but what the person getting the 1/4 rent is a landlord--he/she is not the one doing the farming, so your client doesn't owe any SE on this. When one gets a fixed percentage of the proceeds (usually 1/3 or 1/4 and known as "crop rent"), it's a farm rental and goes on form 4835 and then flows over to the back of schedule E (Part IV).
If they were getting a straight cash payment of say, $5,000 per year (also known as "cash rent"), then you'd skip the 4835 and go straight to E with it.
Something else (although it won't apply to your $4,000 income person): In future years if you get other farm landlords (or those that are actually farming the land) with larger incomes, take note that if they owe a bunch of tax and didn't make estimates, they can avoid underpayment of estimated tax penalties by filing on or before March 1st if their total gross farm income amounted to 2/3 of their AGI (see part V of Schedule E). The underlying theory for this tax break is that "crop" farmers and landlords can't accurately predict their income due to the variables (markets, weather, spouse's temperament, etc.), so therefore, if you'll file a month and a half early and pay the tax in full, then you won't have to bother to make four estimates for the year.
"Thank God I'm a country boy"--Musical lyrics--JOHN DENVERLast edited by Black Bart; 03-16-2006, 06:16 AM. -
Farm Rental
See TaxBook 7-7 for information on Farm Rentals.
See IRS Pub 225 page 9 & 10.
Report on 4835, not Schedule F.Jiggers, EAComment
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Thanks
a million.Should of thought of this but brain not of full speed with computer crash and all.Thanks again.Comment
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