Rents

The cash rent you receive for the use of your farmland by another person or entity is generally rental income, reported on Schedule E, and not farm income. However, the rent is farm income if:

1. Your arrangement with your tenant provides that you will materially participate in the production or management of production of the farm products on the land, and

2. You materially participate.

See Landlord Participation in Farming in chap- ter 12.

Pasture income and rental. If you pasture someone else’s livestock and take care of them for a fee, the income is from your farming business. You must enter it as “Other Income” on Schedule F. If you simply rent your pasture or other farm real estate for a flat cash amount without providing services, report the income as rent on Schedule E (Form 1040), Part I.

Crop Shares

You must include rent you receive in the form of crop shares in income in the year you convert the shares to money or the equivalent of money. It doesn’t matter whether you use the cash method of accounting or an accrual method of accounting.

If you receive rent in the form of crop shares or livestock, the rental income is included in self-employment income if:

1. Your arrangement with your tenant provides that you will materially participate in the production or management of production of the farm products on the land, and

2. You materially participate.

See Landlord Participation in Farming in chap- ter 12. Report the rental income on Schedule F.

The crop share income isn’t included in self-employment income if:

1. Your arrangement with your tenant doesn’t provide that you will materially participate in the production or management of production of the farm products on the land, or

2. You don’t materially participate in operating the farm.

Report this income on Form 4835, and carry the net income or loss to Schedule E (Form 1040), page 2.

Crop shares you use to feed livestock. Crop shares you receive as a landlord and feed to your livestock are considered converted to money when fed to the livestock. You must include the fair market value of the crop shares in income at that time. You’re entitled to a business expense deduction for the livestock feed in the same amount and at the same time you include the fair market value of the crop share as rental income. Although these two transactions cancel each other for figuring adjusted gross income on Form 1040 or 1040-SR, they may be necessary to figure your self-employment tax. See Landlord Participation in Farming and Farm Optional Method in chapter 12.

Crop shares you give to others (gift). Crop shares you receive as a landlord and give to others are considered converted to money when you make the gift. You must report the fair market value of the crop share as income, even though someone else receives payment for the crop share. This applies even if the gift is made to a qualified charitable organization.

Publication 225 (2025) Chapter 3 Farm Income 11

Example. A tenant farmed part of your land under a crop-share arrangement. The tenant harvested and delivered the crop in your name to an elevator company. Before selling any of the crop, you instructed the elevator company to cancel your warehouse receipt and make out new warehouse receipts in equal amounts of the crop in the names of your children. They sell their crop shares in the following year and the elevator company makes payments directly to your children.

In this situation, you’re considered to have received rental income and then made a gift of that income. You must include the fair market value of the crop shares in your income for the tax year you gave the crop shares to your children.

Crop share loss. If you’re involved in a rental or crop-share lease arrangement that isn’t included in self-employment income, any loss from these activities may be subject to the limits under the passive loss rules.

Machinery or Equipment

Income from renting machinery or equipment to others is subject to self-employment tax if the equipment is not leased with real property and the rental activity is a trade or business. Ta- ble 3-3. Income from Renting Machinery or Equipment summarizes the different tax treat- ments:

Rental income may be recharacterized