Instructions For Schedule F - Profit Or Loss From Farming

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Deducting the prepayment will not

return) were liable for and paid interest on

Lines 26a and 26b

materially distort your income.

the mortgage and the other person received

the Form 1098, include your share of the

If you rented or leased vehicles, machinery,

If all of the above apply, you can deduct

interest on line 23b. Attach a statement to

or equipment, enter on line 26a the business

the prepaid feed, which is subject to the

your return showing the name and address

portion of your rental cost. But if you

overall limit for Prepaid farm supplies ex-

of the person who received the Form 1098.

leased a vehicle for a term of 30 days or

plained on page F-4. If all of the above do

In the margin next to line 23b, enter “See

more, you may have to reduce your deduc-

not apply, you can deduct the prepaid feed

attached.”

tion by an inclusion amount. See Pub. 463

only in the year it is consumed.

to figure your inclusion amount.

Do not deduct interest you prepaid in

2004 for later years; include only the part

Enter on line 26b amounts paid to rent

that applies to 2004.

Line 20

or lease other property such as pasture or

farmland.

Do not include the cost of transportation

incurred in purchasing livestock held for

Line 24

resale as freight paid. Instead, add these

Line 27

costs to the cost of the livestock, and deduct

Enter the amounts you paid for farm labor.

them when the livestock is sold.

Do not include amounts paid to yourself.

Enter amounts you paid for repairs and

Reduce your deduction by the amounts

maintenance of farm buildings, machinery,

claimed on:

and equipment. You can also include what

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Form 5884, Work Opportunity Credit,

you paid for tools of short life or minimal

Line 22

line 2;

cost, such as shovels and rakes.

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Deduct on this line premiums paid for farm

Form 8844, Empowerment Zone and

Do not deduct repairs or maintenance on

business insurance. Deduct on line 17

Renewal Community Employment Credit,

your home.

amounts paid for employee accident and

line 2;

health insurance. Amounts credited to a re-

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Form 8845, Indian Employment

serve for self-insurance or premiums paid

Credit, line 4;

Line 31

for a policy that pays for your lost earnings

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Form 8861, Welfare-to-Work Credit,

due to sickness or disability are not deduct-

You can deduct the following taxes on this

line 2; and

ible.

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line.

Form 8884, New York Liberty Zone

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Real estate and personal property

Business Employee Credit, line 2.

taxes on farm business assets.

Lines 23a and 23b

Count the cost of boarding farm labor

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Social security and Medicare taxes

but not the value of any products they used

The tax treatment

Interest allocation rules.

you paid to match what you are required to

from the farm. Count only what you paid

of interest expense differs depending on its

withhold from farm employees’ wages and

household help to care for farm laborers.

type. For example, home mortgage interest

any federal unemployment tax paid.

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and investment interest are treated differ-

If you provided taxable fringe

Federal highway use tax.

ently. “Interest allocation” rules require

benefits to your employees,

Do not deduct the following taxes on

you to allocate (classify) your interest ex-

such as personal use of a car, do

this line.

pense so it is deducted on the correct line of

not include in farm labor the

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your return and receives the right tax treat-

Federal income taxes, including your

amounts you depreciated or deducted else-

self-employment tax. However, you can

ment. These rules could affect how much

where.

deduct one-half of your self-employment

interest you are allowed to deduct on

tax on Form 1040, line 30.

Schedule F.

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Estate and gift taxes.

Generally, you allocate interest expense

Line 25

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by tracing how the proceeds of the loan are

Taxes assessed for improvements,

Enter your deduction for contributions to

used. See Pub. 535 for details.

such as paving and sewers.

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employee pension, profit-sharing, or annu-

Taxes on your home or personal use

If you paid interest on a debt secured by

ity plans. If the plan included you as a

property.

your main home and any of the proceeds

self-employed person, enter contributions

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from that debt were used in your farming

State and local sales taxes on property

made as an employer on your behalf on

business, see Pub. 535 to figure the amount

purchased for use in your farming business.

Form 1040, line 32, not on Schedule F.

to include on lines 23a and 23b.

Instead, treat these taxes as part of the cost

Generally, you must file the applicable

of the property.

If you have a mortgage on

How to report.

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form listed below if you maintain a pen-

Other taxes not related to your farm-

real property used in your farming business

sion, profit-sharing, or other funded-de-

ing business.

(other than your main home), enter on line

ferred compensation plan. The filing

23a the interest you paid for 2004 to banks

requirement is not affected by whether or

or other financial institutions for which you

not the plan qualified under the Internal

received a Form 1098 (or similar state-

Line 32

Revenue Code, or whether or not you claim

ments). If you did not receive a Form 1098,

a deduction for the current tax year. There

Enter amounts you paid for gas, electricity,

enter the interest on line 23b.

is a penalty for failure to timely file these

water, etc., for business use on the farm. Do

forms.

If you paid more mortgage interest than

not include personal utilities. You cannot

is shown on Form 1098, see Pub. 535 to

deduct the base rate (including taxes) of the

Form 5500.

File this form for a plan that is

find out if you can deduct the additional

first telephone line into your residence,

not a one-participant plan (see below).

interest. If you can, include the amount on

even if you use it for your farming busi-

File this form for a

line 23a. Attach a statement to your return

Form 5500-EZ.

ness. But you can deduct expenses you paid

explaining the difference and enter “See

one-participant plan. A one-participant

for your farming business that are more

attached” in the margin next to line 23a.

plan is a plan that only covers you (or you

than the cost of the base rate for the first

and your spouse).

If you and at least one other person

phone line. For example, if you had a sec-

(other than your spouse if you file a joint

For details, see Pub. 560.

ond phone line, you can deduct the business

F-5

Instructions For Schedule F - Profit Or Loss From Farming - 2004 Page 5

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