Instruction 1040 (Schedule J) — Instructions for Schedule J (Form 1040), Income Averaging for Individuals With Income from Farming or Fishing

Official source: IRS Forms, Instructions & Publications (https://www.irs.gov/pub/irs-pdf/i1040sj.pdf), retrieved 2026-10-03. U.S. Government work (17 U.S.C. § 105).

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Income Averaging for Individuals With Income from Farming or Fishing

the fish harvested, either in whole or in part, are intended to enter commerce or enter commerce through sale, barter, or trade. This includes:

1. The catching, taking, or harvesting of fish;

2. The attempted catching, taking, or harvesting of fish;

3. Any other activity that can reasonably be expected to result in the catching, taking, or harvesting of fish;

4. Any operations at sea in support of or in preparation for any activity described in (1) through (3) above;

5. Leasing a fishing vessel, but only if the lease payments are (a) based on a share of the catch (or a share of the proceeds from the sale of the catch) from the lessee’s use of the vessel in a fishing business (not a fixed payment), and (b) determined under a written lease entered into before the lessee begins any significant fishing activities resulting in the catch; and

6. Compensation as a crew member on a vessel engaged in a fishing business, but only if the compensation is based on a share of the catch (or a share of the proceeds from the sale of the catch).

The word “fish” means finfish, mollusks, crustaceans, and all other forms of marine animal and plant life other than marine mammals and birds.

A fishing business doesn’t include any scientific research activity conducted by a scientific research vessel.

Additional Information See Pub. 225 and Regulations section 1.1301-1 for more information.

Elected Farm Income To figure your elected farm income, first figure your taxable income from farming or fishing. This includes all income, gains, losses, and deductions attributable to your farming or fishing business. If you conduct both farming and fishing businesses, you must figure your elected farm income by

Section references are to the Internal Revenue Code unless otherwise noted.

For the latest information about developments related to Schedule J (Form 1040) and its instructions, such as legislation enacted after they were published, go to IRS.gov/ScheduleJ .

Excess business loss limitation. The limitation on excess business losses for noncorporate taxpayers has been made permanent.

Schedule J (Form 1040) title changed. The title for Schedule J (Form 1040) was changed from “Income Averaging For Farmers and Fishermen” to “Income Averaging for Individuals With Income from Farming or Fishing.”

Use Schedule J (Form 1040) to elect to figure your 2025 income tax by averaging, over the previous 3 years (base years), all or part of your 2025 taxable income from your trade or business of farming or fishing. This election may give you a lower tax if your 2025 income from farming or fishing is high and your taxable income for 1 or more of the 3 prior years was low.

In order to qualify for this election, you aren’t required to have been in the business of farming or fishing during any of the base years.

You may elect to average farming or fishing income even if your filing status wasn’t the same in the election year and the base years.

This election doesn’t apply when figuring your alternative minimum tax on Form 6251. Also, you don’t have to refigure, because of this election, the tax liability of any minor child who was required to use your tax rates in the prior years.

You may need copies of your original or amended income tax returns for 2022,

2023, and 2024 to figure your tax on Schedule J.

If you need copies of your tax returns, use Form 4506. There is a fee for each return requested. See Form 4506 for the fee amount. If your main home, principal place of business, or tax records are located in a federally declared disaster area, this fee will be waived. If you want a free transcript of your tax return or account, use Form 4506-T. See the Instructions for Form 1040 to find out how to get these forms.

Keep a copy of your 2025 income tax return to use for income averaging in 2026, 2027, or 2028.

Note: For tax years beginning in 2022, the filing status “Qualifying widow(er)” is called “Qualifying surviving spouse.” The rules for the filing status have not changed. The same rules that applied for Qualifying widow(er) apply to Qualifying surviving spouse. We will match the term to the year of use throughout these instructions.

Definitions

Farming business. A farming business is the trade or business of cultivating land or raising or harvesting any agricultural or horticultural commodity. This includes:

1. Operating a nursery or sod farm;

2. Raising or harvesting of trees bearing fruits, nuts, or other crops;

3. Raising ornamental trees (but not evergreen trees that are more than 6 years old when severed from the roots);

4. Raising, shearing, feeding, caring for, training, and managing animals; and

5. Leasing land to a tenant engaged in a farming business but only if the lease payments are (a) based on a share of the tenant’s production (not a fixed amount) and (b) determined under a written agreement entered into before the tenant begins significant activities on the land.

A farming business doesn’t include:

• Contract harvesting of an agricultural or horticultural commodity grown or raised by someone else, or

• Merely buying or reselling plants or animals grown or raised by someone else.

Fishing business. A fishing business is the trade or business of fishing in which

Instructions for Schedule J (Form 1040) (2025) Catalog Number 25514J Dec 8, 2025 Department of the Treasury Internal Revenue Service www.irs.gov

1040-X, line 6), enter on line 5 the amount from your 2024 Schedule J, line 11;

combining income, gains, losses, and deductions attributable to your farming and fishing businesses.

Elected farm income also includes any gain or loss from the sale or other disposition of property regularly used in your farming or fishing business for a substantial period of time. However, if such gain or loss is realized after cessation of the farming or fishing business, the gain or loss is treated as attributable to a farming or fishing business only if the property is sold within a reasonable time after cessation of the farming or fishing business. A sale or other disposition within 1 year of the cessation is presumed to be within a reasonable time.

Elected farm income doesn’t include income, gain, or loss from the sale or other disposition of land or from the sale of development rights, grazing rights, and other similar rights.

• 2023 but not 2024, enter on line 5 the amount from your 2023 Schedule J, line 15; or

• 2022 but not 2023 or 2024, enter on line 5 the amount from your 2022 Schedule J, line 3.

You should find your income, gains, losses, and deductions from farming or fishing reported on different tax forms, such as:

• 2025 Form 1040 or 1040-SR, or Form 1040-NR, line 1a, income from wages and other compensation you received (a) as a shareholder in an S corporation engaged in a farming or fishing business, or (b) as a crew member on a vessel engaged in a fishing business (but see Fishing business, earlier);

entire amount, depending on how the amount you include on line 2a affects your tax bracket for the current and prior 3 tax years.

The excess farm loss limitation rules don’t apply for tax years beginning after 2017. The excess farm loss limitation rules are suspended for tax years beginning after 2017 and replaced by the excess business loss limitation rules for tax years beginning after 2020. The at-risk limits and the passive activity limits are applied before calculating the amount of any excess business loss. The amount of any excess business loss allocable to your farming or fishing business(es) is not used in calculating the amount of your elected farm income. See generally the Instructions for Schedule F (Form 1040) and Form 461.

Your elected farm income can’t exceed your taxable income.

Complete lines 2b and 2c if the amount of your elected farm income on line 2a includes net capital gain. Net capital gain is the excess, if any, of net long-term capital gain over net short-term capital loss.

Line 2b. Enter on line 2b the portion of your elected farm income on line 2a treated as a net capital gain. The amount you enter on line 2b can’t exceed the smaller of your total net capital gain or the net capital gain attributable to your farming or fishing business.

Line 2c. Enter on line 2c the smaller of line 2b or the unrecaptured section 1250 gain attributable to your farming or fishing business, if any.

• 2025 Schedule 1 (Form 1040), line 15, deductible part of self-employment tax, but only to the extent that deduction is attributable to your farming or fishing business;

• 2025 Form 1040, 1040-SR, or 1040-NR, line 15, CCF reduction, except to the extent that any earnings (without regard to the carryback of any net operating or net capital loss) from the operation of agreement vessels in the fisheries of the United States or in the foreign or domestic commerce of the United States aren’t attributable to your fishing business;

Figure the tax on the amount on line 3 using:

• Schedule C;

• Schedule D;

• Schedule E, Part II;

• Schedule F;

• Form 4797;

• Form 4835;

• Form 8903, Domestic Production Activities Deduction, but only to the extent that deduction is attributable to your farming or fishing business; and

• The 2025 Tax Table, Tax Computation Worksheet, or Qualified Dividends and Capital Gain Tax Worksheet from the 2025 Instructions for Form 1040 or the 2025 Instructions for Form 1040-NR;

• The 2025 Foreign Earned Income Tax Worksheet from the 2025 Instructions for Form 1040; or

• The Schedule D Tax Worksheet in the 2025 Instructions for Schedule D.

If you figured your tax for 2022, 2023, and 2024 without using Schedule J, enter on line 5 the taxable income from your 2022 tax return (or as previously adjusted by the IRS, or corrected on an amended return). But if that amount is zero or less, complete the 2022 Taxable Income Worksheet to figure the amount to enter on line 5.

If you didn’t file a tax return for 2022, use the amount you would have reported as your taxable income had you been required to file a tax return. Be sure to keep all your records for 2022 for at least 3 years after April 15, 2026 (or the date you file your 2025 tax return, if later).

Instructions for 2022 Taxable Income Worksheet

Line 2. Any net capital loss deduction on your 2022 Schedule D, line 21, isn’t allowed for income averaging purposes to the extent it didn’t reduce your capital loss carryover to 2023. This could happen if the taxable income—shown on your 2022 Form 1040, line 15, or your 2022 Form 1040-NR, line 15 (or as previously adjusted)—was less than zero. Enter on line 2 the amount by which your 2022 capital loss carryover to 2023 (the sum of your short- and long-term capital loss carryovers) exceeds the excess of the loss on your 2022 Schedule D, line 16, over the loss on your 2022 Schedule D, line 21. If you had any net operating loss (NOL) carrybacks to 2022, be sure you refigured your 2022 capital loss carryover to 2023.

Line 3. If you had an NOL for 2022, enter the amount of that NOL from the 2022 Form 1045, Schedule A, line 24, you filed with Form 1045 or Form 1040X. If you didn’t have an NOL for 2022, enter the portion, if any, of the NOL carryovers and carrybacks to 2022 that weren’t used in 2022 and were carried to years after 2022.

Example. A farmer, who is single, didn’t use income averaging for 2022, 2023, or 2024. For 2025, the farmer has $18,000 of elected farm income on Schedule J, line 2a. The taxable income on the farmer’s 2022 Form 1040, line 15, is $850. However, the farmer had a $13,950 NOL for 2023, $9,000 of which was remaining to carry to 2022 after the NOL was carried back to 2021. To complete line 1 of the 2022 Taxable Income Worksheet, the farmer combines the $9,000 NOL carryover with the $850 from the farmer’s 2022 Form 1040, line 15. The

• Form 8949.

Your elected farm income is the amount of your taxable income from farming or fishing that you elect to include on line 2a.

You don’t have to include all of

TIP your taxable income from farming

or fishing on line 2a. It may be to your advantage to include less than the

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Enter the tax on line 4.

If you used Schedule J to figure your tax for:

• 2024 (that is, you entered the amount from the 2024 Schedule J, line 23, on your 2024 Form 1040, Form 1040-SR, or Form 1040-NR, line 16; or on your 2024 Form

2022 Taxable Income Worksheet—Line 5 Keep for Your Records

result is a negative $8,150, the farmer’s 2022 taxable income, which the farmer enters as a positive amount on line 1 of the 2022 Taxable Income Worksheet.

When the farmer filed the 2022 tax return, the farmer had a $3,000 net capital loss deduction on Schedule D, line 21 (which was also entered on Form 1040, line 7); a $7,000 loss on Schedule D, line 16; and a $4,000 capital loss carryover to 2023. However, when the farmer carried back the 2023 NOL ($9,000 of which was carried to 2022), the farmer refigured the 2021 capital loss carryover to 2022 as $7,000. The farmer adds the $3,000 from Schedule D, line 21, and the $7,000 capital loss carryover. The farmer subtracts from the $10,000 result the $7,000 loss on the Schedule D, line 16, and enters $3,000 on line 2 of the worksheet.

The farmer had $850 of taxable income in 2022 that reduced the 2023 NOL carryback. The $3,000 net capital loss deduction reduced the amount of the 2023

NOL carryback. As a result, only $5,150 ($9,000 – $850 – $3,000 = $5,150) was available to carry to 2024 and later years, as shown on the farmer’s 2023 Form 1045, Schedule B, line 10. The farmer enters the $5,150 on line 3 of the worksheet, and $8,150 ($5,150 plus the $3,000 line 2 amount) on line 4. The farmer then subtracts the $8,150 from the $8,150 on line 1 and enters the result, $0, on line 5 of the worksheet. The farmer enters a $0 on Schedule J, line 5. The farmer combines that amount with the $6,000 on Schedule J, line 6, and enters $6,000 on Schedule J, line 7.

If line 7 is zero, enter -0- on line 8. Otherwise, figure the tax on the amount on line 7 using:

• The 2022 Tax Rate Schedules below;

• The 2022 Qualified Dividends and Capital Gain Tax Worksheet, later;

• The 2022 Schedule D Tax Worksheet in the 2022 Schedule D instructions (but use the 2022 Tax Rate Schedules below when figuring the tax on lines 34 and 36 of the Schedule D Tax Worksheet); or

• The 2022 Foreign Earned Income Tax Worksheet, later.

If your elected farm income includes net capital gain, you must use the 2022 Schedule D Tax Worksheet to figure the tax on the amount on line 7. However, if you filed Form 2555 for 2022, you must first complete the 2022 Foreign Earned Income Tax Worksheet, and then use the 2022 Schedule D Tax Worksheet to figure the tax on the amount on line 3 of the Foreign Earned Income Tax Worksheet.

When completing the Schedule D Tax Worksheet, you must allocate 1/3 of the amount on Schedule J, line 2b, (and 1/3 of the amount on line 2c, if any) to 2022. If for 2022 you had a capital loss that resulted in a capital loss carryover to 2023, don’t reduce the elected farm income allocated to 2022 by any part of the carryover.

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2022 Tax Rate Schedules—Line 8

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2022 Qualified Dividends and Capital Gain Tax Worksheet—Line 8 Keep for Your Records

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2022 Foreign Earned Income Tax Worksheet—Line 8 Keep for Your Records

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line 7), and a $7,000 loss on Schedule D, line 16 (as adjusted). The farmer also had a $7,000 capital loss carryover to 2024.

The farmer adds the $3,000 from Schedule D, line 21, and the $7,000 capital loss carryover. The farmer subtracts from the $10,000 result the $7,000 loss on the Schedule D, line 16, and enters $3,000 on line 2 of the worksheet.

The farmer enters $14,500 on line 3 of the worksheet, the 2023 NOL from their 2023 Form 1045, Schedule A, line 24. Of the $29,900 negative taxable income, the $0 deduction for the suspended exemptions, the $3,000 capital loss deduction, and the farmer’s $12,400 standard deduction weren’t allowed in figuring the NOL. The farmer had a $14,500 loss on the 2023 Schedule F, the only other item on the farmer’s 2023 tax return.

The farmer enters $17,500 (the $3,000 line 2 amount plus the $14,500 line 3 amount) on line 4 and $12,400 (the $29,900 line 1 amount minus the $17,500 line 4 amount) on line 5. The farmer enters $12,400 as a negative amount on Schedule J, line 9. The farmer enters $6,000 on Schedule J, line 10, and a negative $6,200 on Schedule J, line 11. If the farmer uses Schedule J to figure their tax for 2026, the farmer will enter the negative $6,200 amount on their 2026 Schedule J as the farmer’s 2023 taxable income for income averaging purposes.

If you used Schedule J to figure your tax for:

• 2024 (that is, you entered the amount from the 2024 Schedule J, line 23, on your 2024 Form 1040, Form 1040-SR, or Form 1040-NR, line 16; or 2024 Form 1040-X, line 6), enter on line 9 the amount from your 2024 Schedule J, line 15; or

• 2023 but not 2024, enter on line 9 the amount from your 2023 Schedule J, line 3.

If you figured your tax for both 2023 and 2024 without using Schedule J, enter on line 9 the taxable income from your 2023 tax return (or as previously adjusted by the IRS, or corrected on an amended return). But if that amount is zero or less, complete the worksheet below to figure the amount to enter on line 9.

If you didn’t file a tax return for 2023, use the amount you would have reported as your taxable income had you been required to file a tax return. Be sure to keep all your records for 2023 until at least 3 years after April 15, 2026 (or the date you file your 2025 tax return, if later).

Instructions for 2023 Taxable Income Worksheet

Line 2. Any net capital loss deduction on your 2023 Schedule D, line 21, isn’t allowed for income averaging purposes to the extent it didn’t reduce your capital loss carryover to 2024. This could happen if the taxable income—shown on your 2023

Form 1040, Form 1040-SR, or Form 1040-NR, line 15 (or as previously adjusted)—was less than zero. Enter on line 2 the amount by which your 2023 capital loss carryover to 2024 (the sum of your short- and long-term capital loss carryovers) exceeds the excess of the loss on your 2023 Schedule D, line 16, over the loss on your 2023 Schedule D, line 21. If you had any NOL carrybacks to 2023, be sure you refigured your 2023 capital loss carryover to 2024.

Line 3. If you had an NOL for 2023, enter the amount of that NOL from the 2023 Form 1045, Schedule A, line 24, you filed with Form 1045 or Form 1040-X. If you didn’t have an NOL for 2023, enter the portion, if any, of the NOL carryovers and carrybacks to 2023 that weren’t used in 2023 and were carried to years after 2023.

Example. The farmer didn’t use income averaging for 2022, 2023, or 2024. The taxable income on the farmer’s 2023 Form 1040, line 15, is a negative $29,900. The deduction for exemptions has been suspended. The farmer subtracts from the $29,900 loss the $0 deduction for the suspended exemptions. The result is a negative $29,900, the farmer’s 2023 taxable income, which the farmer enters as a positive amount on line 1 of the 2023 Taxable Income Worksheet.

When the farmer filed their 2023 tax return, the farmer had a $3,000 net capital loss deduction on Schedule D, line 21 (which was also entered on Form 1040,

2023 Taxable Income Worksheet—Line 9 Keep for Your Records

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If line 11 is zero or less, enter -0- on line 12. Otherwise, figure the tax on the amount on line 11 using:

• The 2023 Tax Rate Schedules below;

• The 2023 Qualified Dividends and Capital Gain Tax Worksheet, later;

• The 2023 Schedule D Tax Worksheet in the 2023 Schedule D instructions (but use the 2023 Tax Rate Schedules below when figuring the tax on the Schedule D Tax Worksheet, lines 42 and 44); or

• The 2023 Foreign Earned Income Tax Worksheet, later.

If your elected farm income includes net capital gain, you must use the 2023 Schedule D Tax Worksheet to figure the tax on the amount on line 11. However, if you filed Form 2555 for 2023, you must first complete the 2023 Foreign Earned Income Tax Worksheet, and then use the 2023 Schedule D Tax Worksheet to figure the tax on the amount on line 3 of the Foreign Earned Income Tax Worksheet.

When completing the Schedule D Tax Worksheet, you must allocate 1/3 of the amount on Schedule J, line 2b, (and 1/3 of the amount on line 2c, if any) to 2023. If for 2023 you had a capital loss that resulted in a capital loss carryover to 2024, don’t reduce the elected farm income allocated to 2023 by any part of the carryover.

2023 Tax Rate Schedules—Line 12

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2023 Qualified Dividends and Capital Gain Tax Worksheet—Line 12 Keep for Your Records

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2023 Foreign Earned Income Tax Worksheet—Line 12 Keep for Your Records

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(which was also entered on Form 1040, line 7); a $7,000 loss on Schedule D, line 16; and a $5,000 capital loss carryover to 2025 (the farmer’s 2024 capital loss carryover to 2025 was $5,000, not $4,000, because the amount on the Form 1040, line 15, would have been a negative $1,000 if the farmer could have entered a negative number on that line). The farmer adds the $3,000 from Schedule D, line 21, and the $5,000 carryover. The farmer subtracts from the $8,000 result the $7,000 loss on the Schedule D, line 16, and enters $1,000 on line 2 of the worksheet.

The farmer enters -0- on line 3 of the worksheet because the farmer doesn’t have an NOL for 2024 and didn’t have an NOL carryover from 2024 available to carry to 2025 and later years. The NOL deduction for 2024 of $5,150 was reduced to zero because it didn’t exceed the farmer’s modified taxable income of $7,150. Modified taxable income is figured by adding back the $3,000 net capital loss deduction to taxable income (figured without regard to the NOL deduction) of $4,150. The farmer enters $1,000 on line 4 and $0 on line 5 of the worksheet. The farmer enters $0 on Schedule J, line 13. The farmer enters $6,000 on Schedule J, line 14, and $6,000 on Schedule J, line 15. If the farmer uses Schedule J to figure the farmer’s tax for 2026, the farmer will enter $6,000 on the farmer’s 2026 Schedule J as the 2024 taxable income for income averaging purposes.

If you used Schedule J to figure your tax for 2024 (that is, you entered the amount from the 2024 Schedule J, line 23, on your 2024 Form 1040, 1040-SR, or 1040-NR, line 16; or on Form 1040-X, line 6, for 2024), enter on line 13 the amount from your 2024 Schedule J, line 3.

If you didn’t use Schedule J to figure your tax for 2024, enter on line 13 the taxable income from your 2024 tax return (or as previously adjusted by the IRS, or corrected on an amended return). But if that amount is zero or less, complete the worksheet below to figure the amount to enter on line 13.

If you didn’t file a tax return for 2024, use the amount you would have reported as your taxable income had you been required to file a tax return. Be sure to keep all your records for 2024 until at least 3 years after April 15, 2026 (or the date you file your 2025 tax return, if later).

Instructions for 2024 Taxable Income Worksheet

Line 2. Any net capital loss deduction on your 2024 Schedule D, line 21, isn’t allowed for income averaging purposes to the extent it didn’t reduce your capital loss carryover to 2025. This could happen if the taxable income—shown on your 2024 Form 1040, 1040-SR, or 1040-NR, line 15 (or as previously adjusted)—would have been less than zero if you could have

entered a negative amount on that line. Enter on line 2 the amount by which your 2024 capital loss carryover to 2025 (the sum of your short- and long-term capital loss carryovers) exceeds the excess of the loss on your 2024 Schedule D, line 16, over the loss on your 2024 Schedule D, line 21.

Line 3. If you had an NOL for 2024, enter the amount of that NOL from the 2024 Form 1045, Schedule A, line 24, you filed with Form 1045 or Form 1040-X. If you didn’t have an NOL for 2024, enter the portion, if any, of the NOL carryovers and carrybacks to 2024 that weren’t used in 2024 and were carried to years after 2024.

Example. The farmer didn’t use income averaging for 2022, 2023, or 2024. The taxable income on the farmer’s 2024 Form 1040, line 15, would have been a negative $1,000 if the farmer could have entered a negative number on that line. This amount includes an NOL deduction on the farmer’s 2024 Schedule 1 (Form 1040), line 8a, of $5,150. The $5,150 is the portion of the 2023 NOL that was remaining from 2022 to be carried to 2024. See the examples earlier. The farmer’s taxable income is limited to zero and the farmer doesn’t have an NOL for 2024. The result is a negative $1,000, the farmer’s 2024 taxable income, which the farmer enters as a positive amount on line 1 of the 2024 Taxable Income Worksheet.

When the farmer filed the 2024 tax return, the farmer had a $3,000 net capital loss deduction on Schedule D, line 21

2024 Taxable Income Worksheet—Line 13 Keep for Your Records

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If line 15 is zero or less, enter -0- on line 16. Otherwise, figure the tax on the amount on line 15 using:

• The 2024 Tax Rate Schedules below;

• The 2024 Qualified Dividends and Capital Gain Tax Worksheet, later;

• The 2024 Schedule D Tax Worksheet in the 2024 Schedule D instructions (but use the 2024 Tax Rate Schedules when figuring the tax on the Schedule D Tax Worksheet, lines 44 and 46); or

• The 2024 Foreign Earned Income Tax Worksheet, later.

If your elected farm income includes net capital gain, you must use the 2024 Schedule D Tax Worksheet to figure the tax on the amount on line 15. However, if you filed Form 2555 for 2024, you must first complete the 2024 Foreign Earned Income Tax Worksheet and then use the 2024 Schedule D Tax Worksheet to figure the tax on the amount on line 3 of the Foreign Earned Income Tax Worksheet.

When completing the Schedule D Tax Worksheet, you must allocate 1/3 of the amount on Schedule J, line 2b, (and 1/3 of the amount on line 2c, if any) to 2024. If for 2024 you had a capital loss that resulted in a capital loss carryover to 2025, don’t reduce the elected farm income allocated to 2024 by any part of the carryover.

2024 Tax Rate Schedules—Line 16

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2024 Qualified Dividends and Capital Gain Tax Worksheet—Line 16 Keep for Your Records

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2024 Foreign Earned Income Tax Worksheet—Line 16 Keep for Your Records

If you amended your return or the IRS made changes to it, make sure you enter the corrected amount.

Lines 19, 20, and 21 For example, your “tax” line may, in addition to the tax imposed by section 1, include amounts from Form 8814 or 4972;

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amounts from the recapture of an education credit; or a repayment amount for any excess of advance monthly payments of the health coverage tax credit.