Stopped Farming

[ericleve]

I have a client who had been farming on the side and reporting on Sch. C. He stopped farming in March 2007 and now rents the land. But he still has grain stored that he is waiting to sell. My question is how do I handle his business expenses, depreciation, etc? When does he actually stop farming - when he started to rent and stopped materially participating OR when he finally disposes of the remainder of the business assets (i.e grain inventory)?

[Jiggers]

Schedule C or Schedule F?

I have a client who had been farming on the side and reporting on Sch. C. He stopped farming in March 2007 and now rents the land. But he still has grain stored that he is waiting to sell. My question is how do I handle his business expenses, depreciation, etc? When does he actually stop farming - when he started to rent and stopped materially participating OR when he finally disposes of the remainder of the business assets (i.e grain inventory)?

You are reporting on Schedule C?

Why?

This would go on Schedule F.

See Pub 225 on Farmers for how to handle renting of the land, with or without providing services.

[ericleve]

Stopped Farming

Oops, I made a typo. Yes, the farm activity is reported on Sch. F. But I canot find anywhere in Pub. 225 how to handle the disposal of this business and converting it to rental land. Since he still has grain inventory that he is paying storage fees on, etc (and that he will have income on when he sells it in 2008) is he still an active farmer for all of 2007? And if he is, can we continue his depreciation expenses and other farm expenses for all of 2007? Or do those have to stop as of the time he started renting the land?

[DixieEA]

still farming

ericleve, I would think you still file sch f because the carryover of grain when sold should
be subject to SE tax since the farmer earned this imcome.

DixieEA

[cpadan]

I would allocate the expenses related to the storage of the grain to F (if enough to justify it) and rest to the farm rent.