Hatchery business.

If you are in the hatchery business, and use an accrual method of accounting, you must include in inventory eggs in the process of incubation.

Products held for sale.

All harvested and purchased farm products held for sale or for feed or seed, such as grain, hay, silage, concentrates, cotton, tobacco, etc., must be included in inventory.

Supplies.

Supplies acquired for sale or that become a physical part of items held for sale must be included in inventory. Deduct the cost of supplies in the year used or consumed in operations. Do not include incidental supplies in inventory as these are deductible in the year of purchase.

Livestock.

Livestock held primarily for sale must be included in inventory. Livestock held for draft, breeding, or dairy purposes can either be depreciated or included in inventory. Also, see Unit-livestock-price method, later. If you are in the business of breeding and raising chinchillas, mink, foxes, or other fur-bearing animals, these animals are livestock for inventory purposes.

Growing crops.

Generally, growing crops are not required to be included in inventory. However, if the crop has a preproductive period of more than 2 years, you may have to capitalize (or include in inventory) costs associated with the crop.

Uniform capitalization rules.

The following applies if you are required to use an accrual method of accounting.

Items to include in inventory.

Your inventory should include all items held for sale, or for use as feed, seed, etc., whether raised or purchased, that are unsold at the end of the year.

Inventory valuation methods.

The following methods, described below, are those generally available for valuing inventory. The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income.

Cost and lower of cost or market methods.

See Pub. 538 for information on these valuation methods.

Farm-price method.

Under this method, each item, whether raised or purchased, is valued at its market price less the direct cost of disposition. Market price is the current price at the nearest market in the quantities you usually sell. Cost of disposition includes broker's commissions, freight, hauling to market, and other marketing costs. If you use this method, you must use it for your entire inventory, except that livestock can be inventoried under the unit-livestock-price method.

Unit-livestock-price method.

This method recognizes the difficulty of establishing the exact costs of producing and raising each animal. You group or classify livestock according to type and age and use a standard unit price for each animal within a class or group. The unit price you assign should reasonably approximate the normal costs incurred in producing the animals in such classes. Unit prices and classifications are subject to approval by the IRS on examination of your return. You must annually reevaluate your unit livestock prices and adjust the prices upward or downward to reflect increases or decreases in the costs of raising livestock. IRS approval is not required for these adjustments. Any other changes in unit prices or classifications do require IRS approval.

If you use this method, include all raised livestock in inventory, regardless of whether they are held for sale or for draft, breeding, sport, or dairy purposes. This method accounts only for the increase in cost of raising an animal to maturity. It does not provide for any decrease in the animal's market value after it reaches maturity. Also, if you raise cattle, you are not required to inventory hay you grow to feed your herd.

Do not include animals that were sold or lost in the year-end inventory. If your records do not show which animals were sold or lost, treat the first animals acquired as sold or lost. The animals on hand at the end of the year are considered those most recently acquired.

You must include in inventory all livestock purchased primarily for sale. You can choose either to include in inventory or depreciate livestock purchased for draft, breeding, sport, or dairy purposes. However, you must be consistent from year to year, regardless of the method you have chosen. You cannot change your method without obtaining approval from the IRS.

You must include in inventory animals purchased after maturity or capitalize them at their purchase price. If the animals are not mature at purchase, increase the cost at the end of each tax year according to the established unit price. However, in the year of purchase, do not increase the cost of any animal purchased during the last 6 months of the year. This “no increase” rule does not apply to tax shelters, which must make an adjustment for any animal purchased during the year. It also does not apply to taxpayers that must make an adjustment to reasonably reflect the particular period in the year in which animals are purchased, if necessary to avoid significant distortions in income.

Note.

A farmer can determine costs required to be allocated under the uniform capitalization rules by using the farm-price or unit-livestock-price inventory method. This applies to any plant or animal, even if the farmer does not hold or treat the plant or animal as inventory property.

Crop method.

If you do not harvest and dispose of your crop in the same tax year that you plant it, you can, with IRS approval, use the crop method of accounting. You cannot use the crop method for any tax return, including your first tax return, unless you receive approval from the IRS. Under this method, you deduct the entire cost of producing the crop, including the expense of seed or young plants, in the year you realize income from the crop.

See chapter 4 for details on deducting the costs of operating a farm. Also, see Regulations section 1.162-12.

Other special methods.

Other special methods of accounting apply to the following items.

Form 3115.

To obtain approval, you must generally file Form 3115. There are instances when you can obtain automatic consent to change certain accounting methods. In other instances, you can file Form 3115 using the non-automatic change request procedures to request an accounting method change. For more information, see Form 3115 and the Instructions for Form 3115. Also, see Pub. 538.

Usual business practice.

You must determine the number of animals you would have sold had you followed your usual business practice in the absence of the weather-related condition. Do this by considering all the facts and circumstances, but don't take into account your sales in any earlier year for which you postponed the gain. If you haven't yet established a usual business practice, rely on the usual business practices of similarly situated farmers in your general region.

Connection with affected area.

The livestock doesn't have to be raised or sold in an area affected by a weather-related condition for the postponement to apply. However, the sale must occur solely because of a weather-related condition that affected the water, grazing, or other requirements of the livestock. This requirement generally won't be met if the costs of feed, water, or other requirements of the livestock affected by the weather-related condition aren't substantial in relation to the total costs of holding the livestock.

Classes of livestock.

You must figure the amount to be postponed separately for each generic class of animals—for example, hogs, sheep, and cattle. Don’t separate animals into classes based on age, sex, or breed.

Amount to be postponed.

Follow these steps to figure the amount of gain to be postponed for each class of animals.

How to postpone gain.

To postpone gain, attach a statement to your tax return for the year of the sale. The statement must include your name and address and give the following information for each class of livestock for which you're postponing gain.

Generally, you must file the statement and the return by the due date of the return, including extensions. However, for sales or exchanges treated as an involuntary conversion from weather-related sales of livestock in an area eligible for federal assistance (discussed in chapter 11), you are required to attach a statement in the year you realize the gain and again in the year you replace the livestock. For other sales or exchanges, if you timely filed your return for the year without postponing gain, you can still postpone gain by filing an amended return within 6 months of the due date of the return (excluding extensions). Attach the statement to the amended return and write “Filed pursuant to section 301.9100-2” at the top of the amended return. File the amended return at the same address you filed the original return. Once you have filed the statement, you can cancel your postponement of gain only with the approval of the IRS.

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.

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.

Form 1099-A.

If you forfeit pledged crops to the CCC in full payment of a loan, you may receive a Form 1099-A. “CCC” should be shown in box 6. The amount of any CCC loan outstanding when you forfeited your commodity should also be indicated on the form.

Election to postpone reporting until the following year.

You can postpone reporting some or all crop insurance proceeds as income until the year following the year the physical damage occurred if you meet all the following conditions.

Proceeds received from revenue insurance policies may be the result of either yield loss due to physical damage or to decline in price from planting to harvest. For these policies, only the amount of the proceeds received as a result of yield loss can be deferred. Proceeds received from weather insurance policies cannot be deferred if the payment is based on rainfall amounts and is not a result of physical damage to a crop.

To postpone reporting some or all crop insurance proceeds received in 2024, report the amount you received on Schedule F, line 6a, but don't include it as a taxable amount on line 6b. Check the box on line 6c and attach a statement to your tax return. The statement must include your name and address and contain the following information.

One election covers all crops representing a single trade or business. If you have more than one farming business, make a separate election for each one. For example, if you operate two separate farms on which you grow different crops and you keep separate books for each farm, you should make two separate elections to postpone reporting insurance proceeds you receive for crops grown on each of your farms.

An election is binding for the year unless the IRS approves your request to change it. To request IRS approval to change your election, write to the IRS at the following address, giving your name, address, identification number, the year you made the election, and your reasons for wanting to change it.

Qualifying programs.

If the three tests listed above are met, you can exclude part or all of the payments from the following programs.

Small watershed programs.

If the three tests listed earlier are met, you can exclude part or all of the payments you receive under the following programs for improvements made in connection with a watershed.

Income realized.

The gross income you realize upon getting an improvement under these cost-sharing programs is the value of the improvement reduced by the sum of the excludable portion and your share of the cost of the improvement (if any).

Value of the improvement.

You determine the value of the improvement by multiplying its fair market value (defined in chapter 6) by a fraction. The numerator of the fraction is the total cost of the improvement (all amounts paid either by you or by the government for the improvement) reduced by the sum of the following items.

Excludable portion.

The excludable portion is the present fair market value of the right to receive annual income from the affected acreage of the greater of the following amounts.

Effects of the exclusion.

When you figure the basis of property you acquire or improve using cost-sharing payments excluded from income, subtract the excluded payments from your capital costs. Any payment excluded from income isn't part of your basis. In the example above, the increase in basis is $500,000 – $490,000 + $3,450 = $13,450.

In addition, you can't take depreciation, amortization, or depletion deductions for the part of the cost of the property for which you receive cost-sharing payments you exclude from income.

How to report the exclusion.

Attach a statement to your tax return (or amended return) for the tax year you receive the last government payment for the improvement. The statement must include the following information.

Report the total cost-sharing payments you receive on Schedule F, line 4a, and the taxable amount on line 4b.

Recapture.

If you dispose of the property within 20 years after you received the excluded payments, you must treat as ordinary income part or all of the cost-sharing payments you excluded. In the above example, if the 100 acres were sold within 20 years of the exclusion for a gain of $2,000, $1,550 of that amount would be included in ordinary income. You must report the recapture on Form 4797. See Section 1255 property under Other Gains in chapter 9.

Electing not to exclude payments.

You can elect not to exclude all or part of any payments you receive under these programs. If you make this election for all of these payments, none of the above restrictions and rules apply. You must make this election by the due date, including extensions, for filing your return. In the example above, an election not to exclude payments results in $5,000 included in income and a $15,000 increase in basis. If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Write “Filed pursuant to section 301.9100-2” at the top of the amended return and file it at the same address you filed the original return.

Qualified written notice of allocation.

If you receive a qualified written notice of allocation as part of a patronage dividend, you must generally include its stated dollar value in your income on Schedule F in the year you receive it. A written notice of allocation is qualified if at least 20% of the patronage dividend is paid in money or by qualified check and either of the following conditions is met.

Qualified check.

A qualified check is any instrument that's redeemable in money and meets both of the following requirements.

Loss on redemption.

You can deduct on Schedule F, Part II, any loss incurred on the redemption of a qualified written notice of allocation you received in the ordinary course of your farming business. The loss is the difference between the stated dollar amount of the qualified written notice you included in income and the amount you received when you redeemed it. Report the loss on redemption as an expense on Schedule F, Part II, line 32 (Other expenses). Label the expense as “Loss of Qualified Co-op Allocation.”

Nonqualified notice of allocation.

Don’t include the stated dollar value of any nonqualified notice of allocation in income when you receive it. Your basis in the notice is zero. You must include in income for the tax year of disposition any amount you receive from its sale, redemption, or other disposition. Report that amount, up to the stated dollar value of the notice, on Schedule F. However, don't include that amount in your income if the notice resulted from buying or selling capital assets or depreciable property or from buying personal items, as explained in the following discussions.

If the amount you receive is more than the stated dollar value of the notice, report the excess as the type of income it represents. For example, if it represents interest income, report it on your return as interest.

Buying or selling capital assets or depreciable property.

Patronage dividends from buying capital assets or depreciable property used in your business are not included in income. You must, however, reduce the basis of these assets by the dividends. This reduction is taken into account as of the first day of the tax year in which the dividends are received. If the dividends are more than your unrecovered basis, reduce the unrecovered basis to zero and include the difference on Schedule F for the tax year you receive them.

This rule and the exceptions explained below also apply to amounts you receive from the sale, redemption, or other disposition of a nonqualified notice of allocation that resulted from buying or selling capital assets or depreciable property.

Exceptions.

If the dividends are for buying or selling capital assets or depreciable property you didn't own at any time during the year you received the dividends, you must include them on Schedule F, unless one of the following rules applies.

If the dividends are for selling capital assets or depreciable property during the year you received the dividends, treat them as an additional amount received on the sale.

Personal purchases.

Because you can't deduct the cost of personal, living, or family items, such as supplies, equipment, or services not related to the production of farm income, you can omit from the taxable amount of patronage dividends on Schedule F any dividends from buying those items (and you must reduce the cost or other basis of those items by the amount of the dividends). This rule also applies to amounts you receive from the sale, redemption, or other disposition of a nonqualified written notice of allocation resulting from these purchases.

Qualified certificates.

Qualified per-unit retain certificates are those issued to patrons who have agreed to include the stated dollar amount of these certificates in income in the year of receipt. The agreement may be made in writing or by getting or keeping membership in a cooperative whose bylaws or charter states that membership constitutes agreement. If you receive qualified per-unit retain certificates, include the stated dollar amount of the certificates in income on Schedule F, for the tax year you receive them.

Nonqualified certificates.

Don't include the stated dollar value of a nonqualified per-unit retain certificate in income when you receive it. Your basis in the certificate is zero. You must include in income any amount you receive from its sale, redemption, or other disposition. Report the amount you receive from the disposition as ordinary income on Schedule F, lines 3a and 3b, for the tax year of disposition.

Form 1099-C.

If a federal agency, financial institution, credit union, finance company, or credit card company cancels or forgives your debt of $600 or more, you may receive a Form 1099-C, Cancellation of Debt. The amount of debt canceled is shown in box 2.

Price reduced after purchase.

If your purchase of property was financed by the seller and the seller reduces the amount of the debt at a time when you aren't insolvent and the reduction doesn't occur in a chapter 11 bankruptcy case, the amount of the debt reduction will be treated as a reduction in the purchase price of the property. Reduce your basis in the property by the amount of the reduction in the debt. The rules that apply to bankruptcy and insolvency are explained below under Exclusions.

Deductible debt.

You don't realize income from a canceled debt to the extent the payment of the debt would have been a deductible expense. This exception applies before the price reduction exception discussed above and the bankruptcy and insolvency exclusions discussed next.

Debt.

For this discussion, debt includes any debt for which you're liable or that attaches to property you hold.

Gains or losses from the sale or other disposition of farm property.

Gains or losses from the sale or other disposition of farm property other than land can be designated as EFI if you (or your partnership or S corporation) used the property regularly for a substantial period in a farming business. Whether the property has been regularly used for a substantial period depends on all the facts and circumstances.

Liquidation of a farming business.

If you (or your partnership or S corporation) liquidate your farming business, gains or losses on property sold within a reasonable time after operations stop can be designated as EFI. A period of 1 year after stopping operations is a reasonable time. After that, what is a reasonable time depends on the facts and circumstances.

EFI and base year rates.

If your EFI includes both ordinary income and capital gains, you must use tax rates from each base year to compute tax on an equal portion of each type of income. For example, you can't tax all of the capital gains at the rate for capital gains from a single base year.

Negative taxable income for base year.

If your taxable income for any base year was zero because your deductions were more than your income, you may have negative taxable income for that year to combine with your EFI on Schedule J.

Filing status.

You aren't prohibited from using income averaging solely because your filing status isn't the same as your filing status in the base years. For example, if you're married and file jointly, but filed as single in all of the base years, you may still average farm income.

Credit for prior year minimum tax.

You may be able to claim a nonrefundable tax credit if you owed AMT in a prior year. See the Instructions for Form 8801.

Deduction limit.

If you use the cash method of accounting to report your income and expenses, your deduction for prepaid farm supplies in the year you pay for them may be limited to 50% of your other deductible farm expenses for the year (all Schedule F deductions except prepaid farm supplies). This limit doesn't apply if you meet one of the exceptions described later. See chapter 2 for a discussion of the Cash Method of accounting.

If the limit applies, you can deduct the excess cost of farm supplies other than poultry in the year you use or consume the supplies. The excess cost of poultry bought for use (or for both use and resale) in your farm business is deductible in the year following the year you pay for it. The excess cost of poultry bought for resale is deductible in the year you sell or otherwise dispose of that poultry.

Exceptions.

This limit on the deduction for prepaid farm supplies expense doesn't apply if you are a farm-related taxpayer and either of the following apply.

If one of the exceptions is applicable, then the 50% limit on the deduction doesn't apply. Therefore, you can deduct more than 50% of prepaid farm supplies.

You are a farm-related taxpayer if any of the following tests apply.

Payment for the purchase of feed.

Whether a payment is for the purchase of feed or a deposit depends on the facts and circumstances in each case. It is for the purchase of feed if you can show you made it under a binding commitment to accept delivery of a specific quantity of feed at a fixed price and you aren't entitled, by contract or business custom, to a refund or repurchase.

The following are some factors that show a payment is a deposit rather than for the purchase of feed.

A provision permitting substitution of ingredients to vary the particular feed mix to meet your livestock's current diet requirements won't suggest a deposit. Further, a price adjustment to reflect market value at the date of delivery isn't, by itself, proof of a deposit.

Business purpose.

The prepayment has a business purpose only if you have a reasonable expectation of receiving some business benefit from prepaying the cost of livestock feed. The following are some examples of business benefits.

Other factors considered in determining the existence of a business purpose are whether the prepayment was a condition imposed by the seller and whether that condition was meaningful.

No material distortion of income.

The following are some factors considered in determining whether deducting prepaid livestock feed materially distorts income.

Property for services.

If you transfer property to an employee in payment for services, you can deduct as wages paid the fair market value of the property on the date of transfer. If the employee pays you anything for the property, deduct as wages the fair market value of the property minus the payment by the employee for the property.

Treat the wages deducted as an amount received for the property. You may have a gain or loss to report if the property's adjusted basis on the date of transfer is different from its fair market value. Any gain or loss has the same character the exchanged property had in your hands. For more information, see chapter 8.

Child as an employee.

You can deduct reasonable wages or other compensation you pay to your child for doing farmwork if a true employer-employee relationship exists between you and your child. Include these wages in the child's income. The child may have to file an income tax return. These wages may also be subject to social security and Medicare taxes if your child is age 18 or older. Wages paid to minor children become subject to social security and Medicare taxes in the month the dependent child turns 18 years of age. For more information, see Family Employees in chapter 13.

.A Form W-2 should be issued to the child employee..

The fact that your child spends the wages to buy clothes or other necessities you normally furnish doesn't prevent you from deducting your child's wages as a farm expense.

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.

Cash method.

If you use the cash method of accounting, you can generally deduct interest paid during the tax year. You can't deduct interest paid with funds received from the original lender through another loan, advance, or other arrangement similar to a loan. You can, however, deduct the interest when you start making payments on the new loan. For more information, see Cash Method in chapter 2.

Prepaid interest.

Under the cash method, you generally can't deduct any interest paid before the year it is due. Interest paid in advance may be deducted only in the tax year in which it is due.

Accrual method.

If you use an accrual method of accounting, you can deduct only interest that has accrued during the tax year. However, you can't deduct interest owed to a related person who uses the cash method until payment is made and the interest is includible in the gross income of that person. For more information, see Accrual Method in chapter 2.

Allocation of interest.

If you use the proceeds of a loan for more than one purpose, you must allocate the interest on that loan to each use. Allocate the interest to the following categories.

You generally allocate interest on a loan the same way you allocate the loan proceeds. You allocate loan proceeds by tracing disbursements to specific uses.

Secured loan.

The allocation of loan proceeds and the related interest is generally not affected by the use of property that secures the loan.

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.

More information.

For more information on interest, see chapter 8 of Pub. 334.

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 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.

.If you are a cash basis taxpayer, the 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 information 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.

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). The insurance can also cover any child of yours under age 27 at the end of 2024, 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 Insurance 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.

For more information, see Deductible Premiums in chapter 8 of Pub. 334.

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 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.

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.

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.

Standard mileage rate.

Instead of using actual costs, under certain conditions you can use the standard mileage rate. The standard mileage rate for 2024 is 67 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.

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. 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.

If you keep records and they show that your business use was more than 75%, you may be able to claim more. See Recordkeeping requirements 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 Reimbursements to employees under Travel Expenses next.

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.

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.

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 Prepaid 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 chapter 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.

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 Change in Accounting Method in chapter 2.

De minimis safe harbor for tangible property.

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.

Loss of growing plants, produce, and crops.

Losses of plants, produce, and crops raised for sale are generally not deductible. However, you may have a deductible loss on plants with a preproductive period of more than 2 years. See chapter 11 for more information.

Repayment of loans.

You can't deduct the repayment of a loan. However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest on the loan. See Interest, earlier.

Estate, inheritance, legacy, succession, and gift taxes.

You can't deduct estate, inheritance, legacy, succession, and gift taxes.

Loss of livestock.

You can't deduct as a loss the value of raised livestock that die if you deducted the cost of raising them as an expense.

Losses from sales or exchanges between related persons.

You can't deduct losses from sales or exchanges of property between you and certain related persons, including your spouse, brother, sister, ancestor, or lineal descendant. For more information, see chapter 2 of Pub. 544.

Cost of raising unharvested crops.

You can't deduct the cost of raising unharvested crops sold with land owned more than 1 year if you sell both at the same time and to the same person. Add these costs to the basis of the land to determine the gain or loss on the sale. For more information, see Section 1231 Gains and Losses in chapter 9.

Cost of unharvested crops bought with land.

Capitalize the purchase price of land, including the cost allocable to unharvested crops. You can't deduct the cost of the crops at the time of purchase. However, you can deduct this cost in figuring net profit or loss in the tax year you sell the crops.

Cost related to gifts.

You can't deduct costs related to your gifts of agricultural products or property held for sale in the ordinary course of your business. The costs aren't deductible in the year of the gift or any later year. For example, you can't deduct the cost of raising cattle or the cost of planting and raising unharvested wheat on parcels of land given as a gift to your children.

Club dues and membership fees.

Generally, you can't deduct amounts you pay or incur for membership in any club organized for business, pleasure, recreation, or any other social purpose. This includes country clubs, golf and athletic clubs, hotel clubs, sporting clubs, airline clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussions.

Exception.

The following organizations won't be treated as a club organized for business, pleasure, recreation, or other social purposes, unless one of its main purposes is to conduct entertainment activities for members or their guests or to provide members or their guests with access to entertainment facilities.

Fines and penalties.

Generally, no deduction is allowed for fines and penalties paid to a government or specified nongovernmental entity for the violation of any law except:

Total assessment limit.

You can't deduct more than 10% of the total amount assessed to all members of the conservation or drainage district for the depreciable property. This applies whether you pay the assessment in one payment or in installments. If your assessment is more than 10% of the total amount assessed, both the following rules apply.

Yearly assessment limit.

The maximum amount you can deduct in any 1 year is the total of 10% of your deductible share of the cost as explained earlier, plus $500. If the amount you pay or incur is equal to or less than the maximum amount, you can deduct it in the year it is paid or incurred. If the amount you pay or incur is more, you can deduct in that year only 10% of your deductible share of the cost. You can deduct the remainder in equal amounts over the next 9 tax years. Your total conservation expense deduction for each year is also subject to the 25% of gross income from farming limit on the deduction, discussed later.

Sale or other disposal of land during 9-year period.

If you dispose of the land during the 9-year period for deducting conservation expenses subject to the yearly limit, any amounts you have not yet deducted because of this limit are added to the basis of the property.

Death of farmer during 9-year period.

If a farmer dies during the 9-year period, any remaining amounts not yet deducted are deducted in the year of death.

Lump-sum purchase.

If you buy improvements, such as buildings, and the land on which they stand for a lump sum, allocate your cost basis between the land and improvements. See Allocating the Basis, later.

Real estate taxes.

If you pay the real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. If the seller reimburses you for the portion of real estate taxes from the time they owned the property, reduce your deductible real estate tax expense by the amount of the reimbursement.

If you reimburse the seller for taxes the seller paid for you, you can generally deduct that amount as a tax expense in the year of purchase. If you do not reimburse the seller for real estate taxes, you cannot deduct the amount paid on your behalf as a tax expense. In either case, do not include that amount in the basis of your property.

Settlement costs.

Your basis includes the settlement fees and closing costs for buying the property. See Pub. 551 for a detailed list of items you can and cannot include in basis.

Do not include fees and costs for getting a loan on the property. Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance.

Points.

If you pay points to get a loan (including a mortgage, second mortgage, home equity loan, or line of credit), do not add the points to the basis of the related property. You may be able to deduct the points currently or over the term of the loan.

Assumption of a mortgage.

If you buy property and assume (or buy the property subject to) an existing mortgage, your basis includes the amount you pay for the property plus the amount of the mortgage that you assumed.

Constructing assets.

If you build property or have assets built for you, your expenses for this construction are part of your basis. Some of these expenses include the following costs.

In addition, if you use your own employees, farm materials, and equipment to build an asset, do not deduct the following expenses.

You must capitalize these expenses by including them in the asset's basis.

.Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct. .

Land and buildings.

Allocate the cost basis according to the respective fair market values (FMVs) of the land and improvements at the time of purchase. Figure the basis of each asset by multiplying the lump sum by a fraction. The numerator is the FMV of that asset, and the denominator is the FMV of the whole property at the time of purchase.

Fair market value (FMV).

FMV is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts. Sales of similar property on or about the same date may help in figuring the FMV of the property.

Group of assets acquired.

If you buy multiple assets for a lump sum, allocate the amount you pay among the assets. Use this allocation to figure your basis for depreciation and gain or loss on a later disposition of any of these assets. You and the seller may agree in the sales contract to a specific allocation of the purchase price among the assets. If this allocation is based on the value of each asset and you and the seller have adverse tax interests, the allocation will generally be accepted.

Farming business acquired.

If you buy a group of assets that make up a farming business, there are special rules you must use to allocate the purchase price among the assets. Generally, reduce the purchase price by any cash received. Allocate the remaining purchase price to the other business assets received in proportion to (but not more than) their FMVs and in a certain order. See Trade or Business Acquired under Allocating the Basis in Pub. 551 for more information. Also, see the examples under Sale of a Farm in chapter 8.

Transplanted embryo.

If you buy a cow that is pregnant with a transplanted embryo, allocate to the basis of the cow the part of the purchase price equal to the FMV of the cow without the implant. Allocate the rest of the purchase price to the basis of the calf. Neither the cost allocated to the cow nor the cost allocated to the calf is deductible as a current business expense, however, you may be able to take a deduction for depreciation for the cow. The tax treatment for the basis of the cost allocated to the calf will depend on producer's intent.

Example.

You buy 10 embryo transplanted cows that are 5 months pregnant for $40,000. The FMV of 10 cows without implanted embryos is $12,000. Therefore, the 10 calves that were born from the embryo implanted cows would have a basis of $28,000 ($40,000 - $12,000) which is their basis at birth.

If you placed these calves in service in the breeding herd, their basis for depreciation is $28,000. If you decide to sell the calves instead of putting them in the breeding herd, you deduct their $28,000 basis from the sales proceeds.

Plants.

A plant produced in a farming business includes the following items.

Animals.

An animal produced in a farming business includes any stock, poultry or other bird, and fish or other sea life.

Exceptions.

In a farming business, the uniform capitalization rules do not apply to:

Exceptions (1) and (2) do not apply to a corporation, partnership, or tax shelter required to use an accrual method of accounting. See Accrual Method Required under Accounting Methods in chapter 2.

In addition, you can elect not to use the uniform capitalization rules for plants with a preproductive period of more than 2 years. This election cannot be made by a corporation, partnership, or tax shelter required to use an accrual method of accounting. This election also does not apply to any costs incurred for the planting, cultivation, maintenance, or development of any citrus or almond grove (or any part thereof) within the first 4 years the trees were planted.

.If you elect not to use the uniform capitalization rules, you must use the alternative depreciation system for all property used in any of your farming businesses and placed in service in any tax year during which the election is in effect. See chapter 7 for additional information on depreciation..

Preproductive period of more than 2 years.

The preproductive period of plants grown in commercial quantities in the United States is based on their nationwide weighted average preproductive period. Plants producing the crops or yields shown in Table 6-1 have a nationwide weighted average preproductive period of more than 2 years. Other plants (not shown in Table 6-1) may also have a nationwide weighted average preproductive period of more than 2 years.

More information.

For more information on the uniform capitalization rules that apply to property produced in a farming business, see Regulations section 1.263A-4.