Business of Farming

For purposes of soil and water conservation expenses, you are in the business of farming if you cultivate, operate, or manage a farm for profit, either as an owner or a tenant. You are not in the business of farming if you cultivate or operate a farm for recreation or pleasure, rather than for profit. You are not farming if you are engaged only in forestry or the growing of timber.

Farm defined. A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. It also includes plantations, ranches, ranges, and orchards. A fish farm is an area where fish and other marine animals are grown or raised and artificially fed, protected, etc. It doesn’t include an area where fish are merely caught or harvested. A plant nursery is a farm for purposes of deducting soil and water conservation expenses.

Farm rental. If you own a farm and receive farm rental payments based on farm production, either in cash or other form of monetary payment, goods or services in lieu of money, such as crop shares, you are in the business of farming.

If you receive a fixed rental payment that is not based on farm production, you are in the business of farming only if you materially participate in operating or managing the farm.

Example. You own a farm in Iowa. You rent out the farm for $250 per acre and don’t materially participate in producing or managing production of the crops grown on the farm. You can’t deduct your soil conservation expenses for this farm. You must capitalize the expenses and add them to the basis of the land.

If you receive rent for a farm you own