Farm Rental

[Earl]

Have a client who rents farm land on a cash basis. This year he incurred expenses in clearing additional land to be rented. How would the clearing expenses be handled. Don't deal much farm land and farmers.

[MilTaxEA]

Doesn't sound like a farming issue to me at all. He is renting out property, so the income and expenses are reported on Schedule E. Clearing out land to be rented should be capitalized.

[Earl]

Is there any way to recover the expense without waiting until the property is sold.

Client already has 100 acres cleared and rented. Cleared 25 more acres in 2011 that will be rented this year. Total clearing expense was $3000.

[outwest]

one fundamental question is useful life.

Does the land clearing have a determinable useful life? The benefits certainly extend beyond the current year. I would think not, hence capital and non deductible.

Similar in concept to razing an old building on a lot. Demolition is capitalized into the land.

[Gene V]

Farm land rental

Earl,
You might look at Form 4835 and instruction, I think you farm rental may use this Form to report your rental not schedule E.
Also, look at Pub. 225 page 28 , see if your expenses qualify for Conservation expense.

[KBTS]

The instructions say not to use Form 4835 if you are a:

• Landowner (or sub-lessor) and received cash rent for pasture or farmland based on a flat charge—instead report as income on Schedule E (Form 1040), Part I;

So if client is just renting out land by the acre, he will use Sch E.

[Gene V]

The instructions say not to use Form 4835 if you are a:

• Landowner (or sub-lessor) and received cash rent for pasture or farmland based on a flat charge—instead report as income on Schedule E (Form 1040), Part I;

So if client is just renting out land by the acre, he will use Sch E.

Thanks, I missed that paragraph

[Possi]

Taxes on land?

So, following that, wouldn't the taxes paid go on the Sch E as well?

I too, don't do farms. New client receives rent for farm land. I got it, Sch E and hopefully the land tax is on the E, too.

He also receives "rents' on a 1099, for the rights to drill on a second property. Same thing, right? Sch E, rental income. Simple enough. Seems like what is simple to me becomes murky in discussions.

[ed spencer]

I'd say the clearing expense adds to basis

of the property

[Nashville]

Capital unless

Capital expenditure adding to the basis, UNLESS

Cleared area was once used as farmland or pasture as was allowed to lie fallow because of crop rotation. The fallow period would most likely not be used for several years to create a $3000 clearing expense.

If regular crop rotation is in use, clearing is an ordinary and necessary expense.

Interesting note: Those of you so inclined may read in the Old Testament where the law required land to lie fallow after so many years of production. I'm not an expert at this, but I would think this would be in Leviticus or Deuteronomy.

[Possi]

10% of the edge

Capital expenditure adding to the basis, UNLESS

Cleared area was once used as farmland or pasture as was allowed to lie fallow because of crop rotation. The fallow period would most likely not be used for several years to create a $3000 clearing expense.

If regular crop rotation is in use, clearing is an ordinary and necessary expense.

Interesting note: Those of you so inclined may read in the Old Testament where the law required land to lie fallow after so many years of production. I'm not an expert at this, but I would think this would be in Leviticus or Deuteronomy.

And you were not to glean from 10% of the perimeter. You were to leave that for the poor!

[Gary2]

And you were not to glean from 10% of the perimeter. You were to leave that for the poor!

You're mixing two concepts. One is the prohibition against harvesting the corners of the field (from Leviticus). The bible doesn't quantify this, but I imagine the Talmud does. The other is the prohibition against all gleanings, i.e. anything that was dropped or missed during the initial harvest was to be left for the poor - in addition to the corners. (The word "glean" has a specific meaning.)

As for leaving the fields fallow every seven years, that occurs in multiple passages in several books. The Jewish law in this regard is that it only applies to land located in Israel, where it is still observed in various ways.

[Possi]

Sorry

You're mixing two concepts. One is the prohibition against harvesting the corners of the field (from Leviticus). The bible doesn't quantify this, but I imagine the Talmud does. The other is the prohibition against all gleanings, i.e. anything that was dropped or missed during the initial harvest was to be left for the poor - in addition to the corners. (The word "glean" has a specific meaning.)

As for leaving the fields fallow every seven years, that occurs in multiple passages in several books. The Jewish law in this regard is that it only applies to land located in Israel, where it is still observed in various ways.

... sorry Mr Trebek! I should have put that in the form of a question!