Form 4835 Instructions: Farm Rental Income, Expenses, and Line 32

Form 4835 instructions apply to one specific filer: a farmland owner who receives a share of the crops or livestock a tenant produces and who does not materially participate in the farming operation for self-employment tax purposes. You use the form to report your gross share income and government payments in Part I, deduct the expenses you actually paid as the landlord in Part II, and carry the net result over to Schedule E. The form itself is short. Getting there — confirming it’s the right form and handling the loss rules correctly — is where most of the work happens.

Confirm Form 4835 Is the Right Form

Three conditions must all be true before you reach for Form 4835: you own the farmland, a tenant farms it under a crop-share or livestock-share arrangement, and you do not materially participate in the operation for self-employment tax purposes.¹ The header on the form itself says “Income Not Subject to Self-Employment Tax,” which captures the point exactly.²

If any one of those conditions fails, a different form applies:

Tenants who actually farm the land report on Schedule F.
Landlords who do materially participate in the farm operation also use Schedule F, and that income is subject to self-employment tax.²
Landlords receiving a flat cash rent for pasture or farmland, regardless of what the tenant produces, report that income on Schedule E, Part I.

Married couples filing jointly who operate a farm rental as a qualified joint venture can each file a separate Form 4835 for their respective shares, provided neither spouse materially participates for self-employment tax purposes.²

Two Material-Participation Tests, One Form

“Material participation” means two different things on this form, and they produce different consequences. Keep them separate.

The Self-Employment Tax Test

The farm-specific test decides whether you file Form 4835 at all or whether you should be on Schedule F. You materially participate for SE tax purposes if you have an arrangement with your tenant and you meet any one of these:

You do at least three of the following: pay half or more of the direct production costs, furnish half or more of the tools and equipment, advise or consult with the tenant on production decisions, or periodically inspect the production activities.
You regularly and frequently make management decisions that substantially affect the farming operation’s success.
You work 100 hours or more spread over five or more weeks in activities connected with agricultural production.
Based on the totality of your involvement, you are materially and significantly involved in producing the farm commodities.

Meet any one of those and you belong on Schedule F, not Form 4835.

The Passive Activity Test

Even when you properly file Form 4835, a separate set of tests in Publication 925 decides whether your rental is passive for loss-limitation purposes.³ You meet the passive-activity material-participation standard by satisfying any one of seven tests. The ones that most often matter for a farm landlord:

Participating more than 500 hours in the activity during the year.
Your participation being substantially all the participation in the activity.
Participating more than 100 hours and at least as much as any other individual.
Materially participating in the activity for any 5 of the preceding 10 tax years.
Participating on a regular, continuous, and substantial basis under all facts and circumstances.

These tests are broader than the SE tax test, which means you can correctly file Form 4835, owe no self-employment tax, and still have your losses treated as non-passive and fully deductible.

Pull Your Records First

Before opening the form, gather:

Settlement statements from co-ops, grain elevators, or brokers showing proceeds from your share of crops or livestock.
Government program payments received directly as the landlord.
Crop insurance proceeds and federal crop disaster payment records.
Commodity Credit Corporation loan documents, including any forfeitures.
Form 1099-PATR for any patronage dividends — amounts in boxes 1, 2, 3, and 5 may need to be reported as farm rental income.
Receipts and statements for mortgage interest, property taxes, insurance premiums, repairs, and supplies you paid as the landlord. Costs the tenant covers under the arrangement don’t count.

If you’re claiming depreciation on buildings, equipment, or land improvements you own, you’ll also complete Form 4562 and carry that deduction to Form 4835.⁴

Part I: Income

Part I captures all farm rental income received during the tax year.²

Line 1 — Income from the production of livestock, produce, grains, and other crops. Your crop-share or livestock-share income goes here, taken from your settlement statements.
Lines 4a–4c — Commodity Credit Corporation loan amounts. If you forfeited a CCC loan, report the full amount here even if you previously reported the loan proceeds as income.
Lines 5a–5d — Crop insurance proceeds and federal crop disaster payments. You generally report these in the year received. Cash-method taxpayers whose crop damage occurred in the current tax year can elect to defer eligible proceeds to the following year by checking the box on Line 5c and attaching a statement. If you make the election, it covers all eligible crop insurance proceeds for that year.
Line 7 — Total gross farm rental income. Add lines 1 through 6. This figure also goes to Schedule E (Form 1040), Line 42.

Form 4835 recognizes crop-share and livestock-share income only when your share is converted to cash. If the tenant harvested in December but the grain wasn’t sold until January, a cash-method taxpayer reports the income in the following tax year.

Part II: Expenses

Only costs tied to the farm rental property that you actually paid belong in Part II. Personal expenses don’t qualify, and neither do costs the tenant pays under your arrangement. When an expense is shared, allocate carefully and deduct only your portion.²

Line 12 — Depreciation and Section 179 expense deductions not claimed elsewhere, carried from Form 4562.
Line 18 — Insurance premiums on the farm property (not health insurance).
Line 19a — Mortgage interest paid to banks or financial institutions.
Line 19b — Other interest expense on debt used for the farm property.
Line 23 — Repairs and maintenance, such as fencing, building upkeep, or drainage work.
Line 26 — Supplies purchased for the property’s upkeep or operation.
Line 27 — Real estate and other property taxes.

Expenses that don’t fit a designated line are itemized and totaled in the “Other expenses” section near Line 30. Keep the backup: invoices, receipts, tax bills, loan interest statements.

Line 31 totals all expenses from Part II. That figure gets subtracted from your gross income to produce your net result.

Line 32: Net Income or Loss, and Where It Goes

Line 32 is the arithmetic step. Subtract Line 31 from Line 7. Positive means net farm rental income; negative means a loss.²

If the result is income, enter it on Line 32 and carry it to Schedule E (Form 1040), Line 40. If the result is a loss, don’t stop. Continue to Line 34, where the passive activity loss rules determine how much of the loss you can actually deduct this year.

Form 4835 feeds Schedule E, not Form 1040 directly:

Gross income from Line 7 goes to Schedule E, Line 42.
Net income or the allowed loss (from Line 32 or Line 34c) goes to Schedule E, Line 40.

Schedule E then combines this with any other supplemental income and feeds Schedule 1, which flows into your Form 1040 for the AGI calculation. Because Form 4835 is for landlords who don’t materially participate for SE tax purposes, this income is not subject to self-employment tax. You do not file Schedule SE for it.¹

If Line 32 Is a Loss: Passive Activity Limits

Form 4835 income is treated as a rental activity for passive activity loss purposes.² A net loss may be limited unless you clear one of the Publication 925 material-participation tests described above. Clear one of them, and the loss is generally non-passive and fully deductible.³

If the activity is passive, the special allowance for active participation may still help. Landlords who actively participate in a rental real estate activity can deduct up to $25,000 of passive rental losses against non-passive income.⁵ Active participation is a lower bar than material participation and includes approving tenants, setting rental terms, and approving repair expenditures. Your ownership interest must be at least 10% of the activity’s value. The $25,000 allowance phases out as modified AGI rises above $100,000 and disappears entirely at $150,000.

Passive losses you can’t deduct this year carry forward. They offset future passive income from the same activity or become fully deductible in the year you dispose of your entire interest in the property. If you qualify as a real estate professional under the Schedule E rules and you materially participate in the farm rental under the passive activity tests, the loss escapes the passive activity limitation entirely. Enter the deductible loss on Line 34c and carry it to Schedule E, Line 40.

CRP Payments Do Not Go on Form 4835

This one catches a lot of filers. Conservation Reserve Program annual rental payments from the USDA are not rental income for federal tax purposes, despite the program’s name, because the government doesn’t actually use or occupy the land under a CRP contract.⁶ Report CRP annual rental payments on Schedule F, Line 4a, with the taxable amount on Line 4b. They are subject to self-employment tax unless you are receiving Social Security retirement or disability benefits. CRP cost-sharing payments go on Schedule F, Line 4b, unless they qualify for the cost-sharing exclusion. Nothing from CRP belongs on Form 4835 or Schedule E.

Net Investment Income Tax and the QBI Deduction

The flip side of avoiding self-employment tax is potential exposure to the 3.8% Net Investment Income Tax. Rental income generally counts as net investment income, and the NIIT applies when modified AGI exceeds $200,000 for single filers or $250,000 for married filing jointly.⁷ It’s calculated on Form 8960 on the lesser of your net investment income or the amount by which modified AGI exceeds the threshold. The thresholds are not indexed for inflation.

Through tax year 2025, farm rental income on Form 4835 could potentially qualify for the 20% Section 199A qualified business income deduction if the rental activity rose to the level of a trade or business. The Section 199A deduction was available for tax years beginning after December 31, 2017, and ending on or before December 31, 2025.⁸ Unless Congress acts to extend or replace it, the deduction is not available for the 2026 tax year. Check for legislative updates before filing.

Filing Deadline for Farmers

Farmers and fishermen who earn at least two-thirds of their gross income from farming or fishing can skip quarterly estimated tax payments by filing the return and paying any tax owed by March 1. For 2026, that date shifts to March 2 because March 1 falls on a Sunday. Filing and paying by then avoids estimated tax penalties. If no income tax is owed for the year, the standard April 15 deadline applies and there’s no reason to file early.

Whether farm rental income reported on Form 4835 counts toward the two-thirds farming income threshold depends on your overall income mix; if farm rental is your primary income, confirm with a tax professional before relying on the March filing option. Attach Form 4835 and Schedule E to your Form 1040 when you file.

1
Internal Revenue Service. About Form 4835, Farm Rental Income and Expenses
2
Internal Revenue Service. Form 4835 – Farm Rental Income and Expenses
3
Internal Revenue Service. Publication 925 (2025), Passive Activity and At-Risk Rules
4
Internal Revenue Service. Form 4562 – Depreciation and Amortization
5
Internal Revenue Service. Instructions for Form 8582 (2025)
6
Internal Revenue Service. Conservation Reserve Program “Annual Rental Payments” and Self-Employment Tax
7
Internal Revenue Service. Topic No. 559, Net Investment Income Tax
8
Internal Revenue Service. Qualified Business Income Deduction