Farmer's Tax Guide›2025 Returns›4. Farm Business Expenses
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2025 Publ 225 (PDF) · 2026-10-03 edition · updated 2026-10-04 · United States
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Spouse as an employee. You can deduct reasonable wages or other compensation you pay to your spouse if a true employer-employee relationship exists between you and your spouse. Wages you pay to your spouse are subject to social security and Medicare taxes. For more information, see Family Employees in chapter 13.
Nondeductible Pay
You can’t deduct wages paid for certain household work, construction work, and maintenance of your home. However, those wages may be subject to the employment taxes discussed in chapter 13.
Household workers. Do not deduct amounts paid to persons engaged in household work, except to the extent their services are used in boarding or otherwise caring for farm laborers.
Construction labor. Do not deduct wages paid for the construction of new buildings or other improvements. These wages are part of the cost of the building or other improvement. You must capitalize them.
Maintaining your home. If your farm employee spends time maintaining or repairing your home, the wages and employment taxes you pay for that work are nondeductible personal expenses. For example, assume you have a farm employee for the entire tax year and the employee spends 5% of the time maintaining your home. The employee devotes the remaining time to work on your farm. You can’t deduct 5% of the wages and employment taxes you pay for that employee.
22 Chapter 4 Farm Business Expenses Publication 225 (2025)
Secured loan. The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan.
Example. You secure a loan with property used in your farming business. You use the loan proceeds to buy a car for personal use. You must allocate interest expense on the loan to personal use (purchase of the car) even though the loan is secured by farm business property.
Allocation period. The period for which a loan is allocated to a particular use begins on the date the proceeds are used and ends on the earlier of the following dates.
The date the loan is repaid.
The date the loan is reallocated to another use.
More information. For more information on interest, see chapter 8 of Pub. 334.
Breeding Fees
You can generally deduct breeding fees as a farm business expense. However, if the breeder guarantees live offspring as a result of the breeding or other veterinary procedure, you must capitalize these costs as the cost basis of the offspring. Also, if you use an accrual method of accounting, you must capitalize breeding fees and allocate them to the cost basis of the calf, foal, etc. For more information on who must use an accrual method of accounting, see Ac- crual Method Required under Accounting Meth- ods in chapter 2.
If you purchase a frozen embryo and implant it into a breeding female, the cost of the embryo, and associated transplant costs, is not immediately deductible as a farm business expense. If the implant is successful, your basis in the resulting offspring is equal to the cost of the embryo plus the cost of implanting it. If you intend to retain the offspring as part of your breeding herd, you may be able to take a deduction for depreciation. However, if you intend to sell the resulting offspring, deduct the basis from the proceeds of the sale in the year the offspring is sold. If the embryo is not successfully transplanted, deduct the cost of the embryo along with transplant costs as a breeding fee.
Fertilizer and Lime
You can deduct in the year paid or incurred the cost of fertilizer, lime, and other materials applied to farmland to enrich, neutralize, or condition it if the benefits last a year or less. You can also deduct the cost of applying these materials in the year you pay or incur it. However, see Prepaid Farm Supplies, earlier, for a rule that may limit your deduction for these materials.
If the benefits of the fertilizer, lime, or other materials last substantially more than 1 year, you generally capitalize their cost and deduct a part each year the benefits last. However, you can choose to deduct these expenses in the year paid or incurred. If you make this choice, you will need IRS approval if you later decide to capitalize the cost of previously deducted items. If you sell farmland on which fertilizer or lime has been applied and if the selling price of the
land includes part or all of the cost of the fertilizer or lime, you report the sale amount attributable to the fertilizer or lime as ordinary income. See section 180 for more information.
Farmland, for these purposes, is land used for producing crops, fruits, or other agricultural products or for sustaining livestock. It doesn’t include land you have never used previously for producing crops or sustaining livestock. You can’t deduct initial land preparation costs. (See Capital Expenses, later.)
Include government payments you receive for lime or fertilizer in income. See Fertilizer and Lime under Agricultural Program Payments in chapter 3.
Taxes
You can deduct as a farm business expense the real estate and personal property taxes on farm business assets, such as farm equipment, animals, farmland, and farm buildings. You can also deduct the portion of social security and Medicare taxes you pay to match the amount withheld from the wages of farm employees and any federal unemployment tax you pay. For information on employment taxes, see chap- ter 13.
Allocation of taxes. The taxes on the part of your farm you use as your home (including the furnishings and surrounding land not used for farming) are nonbusiness taxes. You may be able to deduct these nonbusiness taxes as itemized deductions on Schedule A (Form 1040). To determine the nonbusiness part, allocate the taxes between the farm assets and nonbusiness assets. The allocation can be done from the assessed valuations. If your tax statement doesn’t show the assessed valuations, you can usually get them from the tax assessor.
State and local general sales taxes. State and local general sales taxes on nondepreciable farm business expense items are deductible as part of the cost of those items. Include state and local general sales taxes imposed on the purchase of assets for use in your farm business as part of the cost you depreciate. Also treat the taxes as part of your cost if they are imposed on the seller and passed on to you.
State and federal income taxes. Individuals can’t deduct state and federal income taxes as farm business expenses. Individuals can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). For tax years after 2017 and before 2026, the Schedule A (Form 1040) deduction for combined state and local income and property taxes is limited to $10,000 ($5,000 if married filing separately). However, you can’t deduct federal income tax.
Highway use tax. You can deduct the federal use tax on highway motor vehicles paid on a truck or truck tractor used in your farm business. For information on the tax itself, including information on vehicles subject to the tax, see the Instructions for Form 2290.
Self-employment tax. You cannot deduct the self-employment tax you pay as a farm business expense. However, you can deduct as an adjustment to income on Schedule 1 (Form 1040), line 15, one-half of your self-employment tax in figuring your adjusted gross income. For more information, see chapter 12.
Insurance
You can generally deduct the ordinary and necessary cost of insurance for your farm business as a business expense. This includes premiums you pay for the following types of insurance.
Fire, storm, crop, theft, liability, and other insurance on farm business assets.
Health and accident insurance on your farm employees.
Workers’ compensation insurance set by state law that covers any claims for job-related bodily injuries or diseases suffered by employees on your farm, regardless of fault.
Business interruption insurance.
State unemployment insurance on your farm employees (deductible as taxes if they are considered taxes under state law).
Insurance to secure a loan. If you take out a policy on your life or on the life of another person with a financial interest in your farm business to get or protect a business loan, you can’t deduct the premiums as a business expense. In the event of death, the proceeds of the policy aren’t taxed as income even if they are used to liquidate the debt.
Advance premiums. Deduct advance payments of insurance premiums only in the year to which they apply, regardless of your accounting method.
Example. On June 29, 2025, you paid a premium of $3,000 for fire insurance on your barn. The policy will cover a period of 3 years beginning on July 1, 2025. Only the cost for the 6 months in 2025 is deductible as an insurance expense on your 2025 calendar-year tax return. Deduct $500, which is the premium for 6 months of the 36-month premium period, or 6 /36 of $3,000. In both 2026 and 2027, deduct $1,000 ( 12 /36 of $3,000). Deduct the remaining $500 in 2028. Had the policy been effective on January 1, 2025, the deductible expense would have been $1,000 for each of the years 2025, 2026, and 2027, based on one-third of the premium used each year.
If you are a cash basis taxpayer, the
TIP 12-month rule may allow you to deduct
the cost of an insurance premium in year one, even though you receive a portion of the benefit from that premium in the following year. See Chapter 2, Expenses under the Cash Method, and/or Publication 538 for more infor- mation on the 12-month rule.
Business interruption insurance. Use and occupancy and business interruption insurance premiums are deductible as a business expense. This insurance pays for lost profits if your business is shut down due to a fire or other cause. Report any proceeds in full on Schedule F, Part I.
Publication 225 (2025) Chapter 4 Farm Business Expenses 23
Self-employed health insurance deduction. If you are self-employed, you can deduct as an adjustment to income on Schedule 1 (Form 1040) your payments for medical, dental, and qualified long-term care insurance coverage for yourself (including Medicare premiums), your spouse, and your dependents when figuring your adjusted gross income on your Schedule 1 (Form 1040). Medical sharing programs and health plans that are not insurance do not qualify for the self-employed health insurance deduction. The insurance can also cover any child of yours under age 27 at the end of 2025, even if the child was not your dependent. Generally, this deduction can’t be more than the net profit from the business under which the plan was established.
If you or your spouse is also an employee of another person, you can’t take the deduction for any month in which you are eligible to participate in a subsidized health plan maintained by your employer or your spouse’s employer.
Generally, use the Self-Employed Health In- surance Deduction Worksheet in the Instructions for Schedule 1 (Form 1040) to figure your deduction. Include the remaining part of the insurance payment in your medical expenses on Schedule A (Form 1040) if you itemize your deductions.
Health insurance that is purchased through the marketplace which qualifies for a Premium Tax Credit may be deductible as a self-employed health insurance deduction, but only to the extent that it is not subsidized. See Pub. 974 for more information.
For more information, see Deductible Premi- ums in chapter 8 of Pub. 334.
Rent and Leasing
If you lease property for use in your farm business, you can generally deduct the rent you pay on Schedule F. However, you can’t deduct rent you pay in crop shares if you deduct the cost of raising the crops as farm expenses.
Advance payments. Deduct advance payments of rent only in the year to which they apply, regardless of your accounting method.
If you are a cash basis taxpayer, the
TIP 12-month rule may allow you to deduct
the cost of advance rental or leasing payments in year one, even though you receive a portion of the benefit from that payment in the following year. See Chapter 2, Expenses under the Cash Method, and/or Publication 538 for more information on the 12-month rule.
Farm home. If you rent a farm, don’t deduct the part of the rental expense that represents the fair rental value of the farm home in which you live.
Lease or Purchase
If you lease a farm building or equipment, you must determine whether or not the agreement must be treated as a conditional sales contract rather than a lease. If the agreement is treated as a conditional sales contract, the payments under the agreement (so far as they don’t represent interest or other charges) are payments for
the purchase of the property. Do not deduct these payments as rent, but capitalize the cost of the property and recover this cost through depreciation.
Conditional sales contract. Whether an agreement is a conditional sales contract depends on the intent of the parties. Determine intent based on the provisions of the agreement and the facts and circumstances that exist when you make the agreement. No single test, or special combination of tests, always applies. However, in general, an agreement may be considered a conditional sales contract rather than a lease if any of the following is true.
The agreement applies part of each payment toward an equity interest you will receive.
You get title to the property after you make a stated amount of required payments.
The amount you must pay to use the property for a short time is a large part of the amount you would pay to get title to the property.
You pay much more than the current fair rental value of the property.
You have an option to buy the property at a nominal price compared to the value of the property when you may exercise the option. Determine this value when you make the agreement.
You have an option to buy the property at a nominal price compared to the total amount you have to pay under the agreement.
The agreement designates part of the payments as interest, or part of the payments can be easily recognized as interest.
Example. You lease new farm equipment from a dealer who both sells and leases. The agreement includes an option to purchase the equipment for a specified price. The lease payments and the specified option price equal the sales price of the equipment plus interest. Under the agreement, you are responsible for maintenance, repairs, and the risk of loss. For federal income tax purposes, the agreement is a conditional sales contract. You can’t deduct any of the lease payments as rent. You can deduct interest, repairs, insurance, depreciation, and other expenses related to the equipment.
Motor vehicle leases. Special rules apply to lease agreements that have a terminal rental adjustment clause. In general, this is a clause that provides for a rental price adjustment based on the amount the lessor is able to sell the vehicle for at the end of the lease. If your rental agreement contains a terminal rental adjustment clause, treat the agreement as a lease if the agreement otherwise qualifies as a lease. For more information, see section 7701(h).
Leveraged leases. Special rules apply to leveraged leases of equipment (arrangements in which the equipment is financed by a nonrecourse loan from a third party). For more information, see Revenue Procedure 2001-28, which begins on page 1156 of Internal Revenue Bulletin 2001-19 at IRS.gov/pub/irs-irbs/ irb01-19.pdf .
Depreciation
If property you acquire to use in your farm business is expected to last more than 1 year, you generally can’t deduct the entire cost in the year you acquire it. You must recover the cost over more than 1 year and deduct part of it each year on Schedule F as depreciation or amortization. However, you can choose to deduct part or all of the cost of certain qualifying property, up to a limit, as a section 179 deduction or special depreciation allowance in the year you place it in service.
Depreciation, amortization, and the section 179 deduction are discussed in chapter 7.
Business Use of Your Home
You can deduct expenses for the business use of your home if you use part of your home exclusively and regularly:
As the principal place of business for any trade or business in which you engage;
As a place to meet or deal with patients, clients, or customers in the normal course of your trade or business; or
In connection with your trade or business, if you are using a separate structure that isn’t attached to your home.
Your home office will qualify as your principal place of business for deducting expenses for its use if you meet both of the following requirements.
You use it exclusively and regularly for the administrative or management activities of your trade or business.
You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.
If you use part of your home for business, you must divide the expenses of operating your home between personal and business use.
The IRS provides a simplified method to determine your expenses for business use of your home. For more information, see Pub. 587.
Deduction limit. If your gross income from farming equals or exceeds your total farm expenses (including expenses for the business use of your home), you can deduct all your farm expenses. But if your gross income from farming is less than your total farm expenses, your deduction for certain expenses for the use of your home in your farming business is limited.
Your deduction for otherwise nondeductible expenses, such as utilities, insurance, and depreciation (with depreciation taken last), can’t be more than the gross income from farming minus the following expenses.
The business part of expenses you could deduct even if you didn’t use your home for business (such as deductible mortgage interest, real estate taxes, and casualty and theft losses).
Farm expenses other than expenses that relate to the use of your home. If you are self-employed, don’t include your deduction for half of your self-employment tax.
24 Chapter 4 Farm Business Expenses Publication 225 (2025)
You should keep an account book or similar record, supported by adequate documentary evidence, such as receipts, that together support each element of an expense. Generally, it is best to record the expense and get documentation of it at the time you pay it.
If you choose to deduct a standard meal allowance rather than the actual expense, you don’t have to keep records to prove amounts spent for meals and incidental items. However, you must still keep records to prove the actual amount of other travel expenses, and the time, place, and business purpose of your travel.
More information. For detailed information on travel, recordkeeping, and the standard meal allowance, see Pub. 463.
Reimbursements to employees. You can generally deduct reimbursements you pay to your employees for travel and transportation expenses they incur in the conduct of your business. Employees may be reimbursed under an accountable or nonaccountable plan. Under an accountable plan, the employee must provide evidence of expenses. Under a nonaccountable plan, no evidence of expenses is required. If you reimburse expenses under an accountable plan, deduct them as travel and transportation expenses. If you reimburse expenses under a nonaccountable plan, you must report the reimbursements as wages on Form W-2 and deduct them as wages. For more information, see chapter 8 of Pub. 334.
Marketing Quota Penalties
You can deduct as Other expenses on Schedule F penalties you pay for marketing crops in excess of farm marketing quotas. However, if you don’t pay the penalty, but instead the purchaser of your crop deducts it from the payment to you, include in gross income only the amount you received. Do not take a separate deduction for the penalty.
Employee Meal and Housing Expenses
You can deduct the costs of maintaining houses and their furnishings for hired help as farm business expenses. These costs include repairs, utilities, insurance, and depreciation.
The value of a dwelling you furnish to an employee isn’t taxable income to the employee, providing it meets the following tests.
It is furnished on your business premises.
It is furnished for your convenience.
The employee must accept it as a condition of employment.
You can deduct the cost of meals you furnish to an employee if they meet the following tests.
- They are furnished on your business premises.
Deductions over the current year’s limit can be carried over to your next tax year. They are subject to the deduction limit for the next tax year.
More information. See Pub. 587 for more information on deducting expenses for the business use of your home.
Telephone expense. You can’t deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for your farm business, are deductible business expenses. Cell phone charges for calls relating to your farm business are deductible. If the cell phone you use for your farm business is part of a family cell phone plan, you must allocate and deduct only the portion of the charges attributable to farm business calls.
Truck and Car Expenses
You can deduct the actual cost of operating a truck or car in your farm business. Only expenses for business use are deductible. These include such items as gasoline, oil, repairs, license tags, insurance, and depreciation (subject to certain limits).
Standard mileage rate. Instead of using actual costs, under certain conditions you can use the standard mileage rate. The standard mileage rate for 2025 is 70 cents per mile. You can use the standard mileage rate for a car or a light truck, such as a van, pickup, or SUV, you own or lease.
You can’t use the standard mileage rate if you operate five or more cars or light trucks at the same time. You aren’t using five or more vehicles at the same time if you alternate using the vehicles (you use them at different times) for business.
Example. You own a car and four pickup trucks that are used in your farm business. Your farm employees use the trucks and you use the car for business. You can’t use the standard mileage rate for the car or the trucks. This is because all five vehicles are used in your farm business at the same time. You must use actual expenses for all vehicles.
Business use percentage. You can claim 75% of the use of a car or light truck as business use without any allocation records if you used the vehicle during most of the normal business day directly in connection with the business of farming. A taxpayer claiming 75% use can use either the standard mileage rate or actual expenses. You choose this method of substantiating business use the first year the vehicle is placed in service. Once you make this choice, you may not change to another method later. The following are uses directly connected with the business of farming.
Cultivating land.
Raising or harvesting any agricultural or horticultural commodity.
Raising, shearing, feeding, caring for, training, and managing animals.
Driving to the feed or supply store.
If you keep records and they show that your business use was more than 75%, you may be able to claim more. See Recordkeeping require- ments under Travel Expenses , later.
More information. For more information on deductible truck and car expenses and the disposition of a truck or car, see chapter 4 of Pub. 463. If you pay your employees for the use of their truck or car in your farm business, see Re- imbursements to employees under Travel Ex- penses next.
Travel Expenses
You can deduct ordinary and necessary expenses you incur while traveling away from home for your farm business. You can’t deduct lavish or extravagant expenses. Usually, the location of your farm business is considered your home for tax purposes. You are traveling away from home if:
Your duties require you to be absent from your farm substantially longer than an ordinary workday, and
You need to get sleep or rest to meet the demands of your work while away from home.
If you meet these requirements and can prove the time, place, and business purpose of your travel, you can deduct your ordinary and necessary travel expenses.
The following are some types of deductible travel expenses.
Air, rail, bus, and car transportation.
Meals and lodging.
Dry cleaning and laundry.
Telephone and fax.
Transportation between your hotel and your temporary work or business meeting location.
Tips for any of the above expenses.
Meals. You can deduct only 50% of your nonentertainment business-related meal expenses. You can deduct the cost of your meals while traveling on business only if your business trip is overnight or long enough to require you to stop for sleep or rest to properly perform your duties. You can’t deduct any of the cost of meals if it isn’t necessary for you to rest. For information on entertainment expenses, see chapter 2 of Pub. 463.
The expense of a meal includes amounts you spend for your food, beverages, taxes, and tips relating to the meal. You can deduct either 50% of the actual cost or 50% of a standard meal allowance that covers your daily meal and incidental expenses.
Note. No deduction is allowed for certain entertainment expenses, membership dues, and facilities used in connection with these activities for amounts paid or incurred after December 31, 2017. See section 274, as amended by the Tax Cuts and Jobs Act, section 13304.
Recordkeeping requirements. You must be able to prove your deductions
Estimates or approximations don’t qualify as proof of an expense.
Publication 225 (2025) Chapter 4 Farm Business Expenses 25
They are furnished for your convenience.
They are furnished to more than half of your employees.
Items Purchased for Resale
If you use the cash method of accounting, you ordinarily deduct the cost of livestock and other items purchased for resale only in the year of sale. You deduct this cost, including freight charges for transporting the livestock to the farm, on Schedule F, Part I. However, see Chickens, seeds, and young plants below.
Example. You use the cash method of accounting. In 2025, you bought 50 steers that you sold in 2026. You can’t deduct the cost of the steers on your 2025 tax return. You deduct their cost on your 2026 Schedule F, Part I once the livestock has been sold.
Chickens, seeds, and young plants. If you are a cash method farmer, you can deduct the cost of hens and baby chicks bought for commercial egg production, or for raising and resale, as an expense on Schedule F, Part I, in the year paid if you do it consistently and it doesn’t distort income. You can also deduct the cost of seeds and young plants bought for further development and cultivation before sale as an expense on Schedule F, Part I, when paid if you do this consistently and you don’t figure your income on the crop method. However, see Pre- paid Farm Supplies , earlier, for a rule that may limit your deduction for these items.
If you deduct the cost of chickens, seeds, and young plants as an expense, report their entire selling price as income. You also can’t deduct the cost from the selling price.
You can’t deduct the cost of seeds and young plants for Christmas trees and timber as an expense. Capitalize the cost of these seeds and plants, and later deduct, through depletion. For more information, see Depletion in chap- ter 7.
The cost of chickens and plants used as food for your family is never deductible.
Capitalize the cost of plants with a preproductive period of more than 2 years, unless you can elect out of the uniform capitalization rules. These rules are discussed in chapter 6.
Example. You use the cash method of accounting. In 2025, you buy 500 baby chicks to raise for resale in 2026. You also buy 50 bushels of winter wheat seed in 2025 that you sow in the fall. Unless you previously adopted the method of deducting these costs in the year you sell the chickens or the harvested crops, you can deduct the cost of both the baby chicks and the seed wheat in 2025.
Election to use crop method. If you use the crop method, you can delay deducting the cost of seeds and young plants until you sell them. You must get IRS approval to use the crop method. If you follow this method, deduct the cost from the selling price to determine your profit on Schedule F, Part I. For more information, see Crop method under Special Methods of Accounting in chapter 2.
Choosing a method. You can adopt either the crop method or the cash method for
deducting the cost in the first year you buy egg-laying hens, pullets, chicks, or seeds and young plants.
Although you must use the same method for egg-laying hens, pullets, and chicks, you can use a different method for seeds and young plants. Once you use a particular method for any of these items, use it for those items until you get IRS approval to change your method. For more information, see Changes in Methods of Accounting in chapter 2.
Other Expenses
The following list, while not all-inclusive, shows some expenses you can deduct as other farm expenses on Schedule F, Part II. These expenses must be for business purposes and (1) paid, if you use the cash method of accounting; or (2) incurred, if you use an accrual method of accounting.
Accounting fees.
Advertising.
Business travel and meals.
Commissions.
Consultant fees.
Crop scouting expenses.
Dues to cooperatives.
Educational expenses (to maintain and improve farming skills).
Farm-related attorney fees.
Farm magazines.
Ginning.
Insect sprays and dusts.
Litter and bedding.
Livestock fees.
Marketing fees.
Milk assessment.
Recordkeeping expenses.
Service charges.
Small tools expected to last 1 year or less.
Stamps and stationery.
Subscriptions to professional, technical, and trade journals that deal with farming.
Tying material and containers.
Utilities and Internet.
De minimis safe harbor for tangible prop- erty. If you elected to use the de minimis safe harbor for tangible property for the tax year, you can deduct as a farm business expense on Schedule F amounts paid for tangible property qualifying under the de minimis safe harbor. For more information, see Capital Expenses, later.
Loan expenses. You prorate and deduct loan expenses, such as legal fees and commissions, you pay to get a farm loan over the term of the loan.
Tax preparation fees. You can deduct as a farm business expense on Schedule F the cost of preparing that part of your tax return relating to your farm business.
You can also deduct on Schedule F the amount you pay or incur in resolving tax issues relating to your farm business.
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