In the income sections of the Schedule F, the taxpayer reports sales of livestock or other items which were purchased for resale, the cost of that livestock or those other items, sales of livestock or other items which were raised, and any payments received from an agricultural program or distributions from a cooperative. Under the accrual method, the beginning and ending inventory amounts for livestock and other products are also reported, and used in the computation of the cost of livestock and other products sold during the year.
Any expenses incurred in the operation of the farm are reported in Part II of the Schedule F. Some of these expenses are car and truck expenses, employee benefit programs, feed purchased, chemicals, depreciation, Section 179 expense deduction, freight and trucking, fertilizers and lime, repairs and maintenance, seeds and plants, labor hired, custom hire, storage and warehousing, supplies, utilities, taxes, breeding and medicine, and conservation expenses. Any other reasonable and necessary expenses related to the production of farming income would also be deductible.
If the Schedule F shows that the farmer has produced a loss from farming for the year, the determination needs to be made whether or not the loss is a passive activity loss. If he or she did not materially participate, the loss would be considered a passive activity loss. A passive activity farm loss needs to be reported on Form 8582 to compute the deductible loss. If part of the loss is disallowed, only the allowable part would be claimed on Schedule F. For purposes of determining material participation, disabled or retired farmers are treated as having materially participated if they materially participated for five out of the prior eight years before their disability or retirement. A net operating loss from farming can be carried back five years.
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