Ag program payments on 4835

[taxmandan]

I don't see farm rentals often and a new client's prior return has me puzzled. Client has some pasture land in Colorado that is rented to a rancher and she receives cash payments. In my research it belongs on a Sch. E not on the Form 4835 as Agricultural program payments, which is where the previous preparer put it. And then, he calculated self-employment tax on that amount which she paid in 2013 & 2014. Am I missing something in the treatment of these payments?

[Roland Slugg]

Income from farm property that is rented out does, indeed, belong on F-4835. The income reported on that form also includes Ag program payments. However the net profit from F-4835 then flows to Schedule E (F-1040), since it is rental income. It is not subject to S-E tax, so if the prior tax preparer reported it on Schedule SE, that was a mistake.

[Lion]

You may be just in time for me! Out-of-state farm. Cash rent. Had been on Schedule E. Sharecroppers, Ag payments, expenses (lime, insurance, tile, etc.) had been on 4835. No SE in past. And, don't see that anything from 4835 flowed to E. The IRS pub seemed like overkill for me to learn about farms, but guess I need to do some reading before preparing this return. Any other advice for me?

[taxmandan]

Income from farm property that is rented out does, indeed, belong on F-4835. The income reported on that form also includes Ag program payments. However the net profit from F-4835 then flows to Schedule E (F-1040), since it is rental income. It is not subject to S-E tax, so if the prior tax preparer reported it on Schedule SE, that was a mistake.

Thanks for the info, the Form 4835 header specifically says: (Crop and Livestock Shares (Not Cash) Received by Landowner (or Sub-Lessor)) (Income not subject to self-employment tax). So I couldn't figure why the SE tax was on the previous return. The net profit does flow to page 2 of the Sch. E, hadn't noticed that until just now.

[RitaB]

Wait, what?

Income from farm property that is rented out does, indeed, belong on F-4835. The income reported on that form also includes Ag program payments. However the net profit from F-4835 then flows to Schedule E (F-1040), since it is rental income. It is not subject to S-E tax, so if the prior tax preparer reported it on Schedule SE, that was a mistake.

I think cash rent for farmland (that is not determined as a function of the renter's sales) does go on Sch E. See the instructions for Form 4835.

https://www.irs.gov/pub/irs-pdf/f4835.pdf