Part II. Farm Expenses

Don’t deduct the following.

• Personal or living expenses (such as taxes, insurance, or repairs on your home) that don’t produce farm income.

• Expenses of raising anything you or your family used that would not have otherwise been deductible as an expense except for the presence of the income-producing farm activity.

• The value of animals you raised that died.

• Inventory losses.

• Personal losses.

Line 8 Enter on line 8 income not otherwise reportable on lines 1 through 7. This includes the following types of income.

• Illegal federal irrigation subsidies. See chapter 3 of Pub. 225.

• Bartering income.

• Income from cancellation of debt. In most cases, if a debt is canceled or forgiven, you must include the canceled amount in income. If a federal agency, financial institution, or credit union canceled or forgave a debt you owed of $600 or more, it should send you a Form 1099-C, or similar statement, by January 31, 2026, showing the amount of debt canceled in 2025. However, you may be able to exclude the canceled debt from income. See Pub. 4681 for details.

If you were repaid for any part of an expense during the same year, you must subtract the amount you were repaid from the deduction.

Capitalizing costs of producing property and acquiring property for resale. If you produced real or tangible personal property or acquired property for resale, you must generally capitalize certain expenses to your inventory or other property. These expenses include the direct costs of the property and any indirect costs properly allocable to that property.

For tax years beginning after 2017, small business taxpayers, defined later, are not required to capitalize costs under section 263A. Section 263A generally doesn’t apply to the following expenses.

1. Producing any plant that has a preproduction period of 2 years or less.

2. Raising animals.

3. Replanting certain crops if they were lost or damaged by reason of freezing temperatures, disease, drought, pests, or casualty.

• State gasoline or fuel tax refunds you received in 2025.

• Any amount included in income from line 3 of Form 6478, Biofuel Producer Credit.

• Any amount included in income from line 10 of Form 8864, Biodiesel, Renewable Diesel, or Sustainable Aviation Fuels Credit.

• The amount of credit for federal tax paid on fuels claimed on your 2024 Schedule 3 (Form 1040). For information on including the credit in income, see chapter 2 of Pub. 510.

• Any recapture of excess depreciation on any listed property, including any section 179 expense deduction, if the business use percentage of that property decreased to 50% or less in

2025. Use Part IV of Form 4797 to figure the recapture. See the instructions for Schedule C (Form 1040), line 13, for the definition of “listed property.”

• The inclusion amount on leased listed property (other than vehicles) when the business use percentage drops to 50% or less. See chapter 5 of Pub. 946 to figure the amount.

• Any recapture of the deduction or credit for clean-fuel vehicle refueling property or alternative fuel vehicle refueling property used in your farming business. For details on how to figure recapture, see section 30C(e)(5).

• Any income from breeding fees, or fees from renting teams, machinery, or land that isn’t reported on Schedule E (Form 1040) or Form 4835.

Exceptions (1) and (2) don’t apply to tax shelters, farming syndicates, partnerships, or corporations required to use the accrual method of accounting under section 447 or 448(a)(3).

Special rules apply to exception (3) if replanting costs are paid or incurred by a taxpayer other than the person described in section 263A(d)(2)(A). See sections 263A(d)(2)(B) and (C) for these different rules. Under section 263A(d)(2)(C), there is a temporary rule for replanting costs of citrus plants that are paid or incurred after December 22, 2017, and on or before December 22, 2027.

Small business taxpayer. A small business taxpayer is one that has gross receipts of $31 million or less for the 3 prior tax years and is not a tax shelter, as defined in section 448(d)(3). See also the inflation adjustment in Rev. Proc. 2024-40 (updated annually), which increased the threshold for small business taxpayers from $30 million to $31 million for tax years beginning in 2025.

If you capitalize your expenses, don’t reduce your deductions on lines 10 through 32e by the capitalized expenses. Instead, enter the total amount capitalized in parentheses on line 32f (to indicate a negative amount) and enter “263A” in the space to the left of the total. See Preproductive period expenses , later, for details.

But you may be able to currently deduct rather than capitalize the expenses of producing a plant with a preproductive period of more than 2 years.

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• The gain or loss on the sale of commodity futures contracts if the contracts were made to protect you from price changes. These are a form of business insurance and are considered

Election to deduct certain preproductive period expenses. If the preproductive period of any plant you produce is more than 2 years, you can elect to currently deduct the expenses rather than capitalize them. But you can’t make this election for the costs of planting or growing citrus or almond groves incurred before the end of the fourth tax year beginning with the tax year you planted them in their permanent grove. You are treated as having made the election by deducting the preproductive period expenses in the first tax year for which you can make this election and by applying the special rules, discussed later.

In the case of a partnership or S corporation, the election