How to Fill Out Schedule F (Form 1040): Income, Expenses, and Net Profit

To fill out Schedule F (Form 1040), you report your farm’s gross income in Part I if you use the cash method or Part III if you use accrual, list your deductible expenses in Part II, and subtract expenses from income on line 34 to arrive at net profit or loss. That figure moves to Schedule 1 as part of your adjusted gross income and to Schedule SE for self-employment tax.¹ The form itself is short. Getting the numbers right depends almost entirely on the records you bring to it.

Before You Start: Records to Pull Together

Your accounting method has to clearly reflect income for the year, and the IRS can override it if it doesn’t.² Cash method farmers record income when payment is received and expenses when paid. Accrual method farmers record income when earned and expenses when incurred, and must include animals and crops in inventory. Most farmers use cash because it’s simpler and gives some control over timing. Switching methods later requires IRS approval on Form 3115.³

Pull together your income records first: sales receipts for crops, livestock, and other products; proceeds from livestock bought for resale (with purchase costs); Form 1099-PATR for cooperative distributions; USDA program payments (CRP, ARC, PLC); crop insurance and disaster payments; custom hire income; and any miscellaneous farm receipts.

Then the expense side: feed, seed, fertilizer, lime, chemicals; labor and payroll taxes; veterinary and breeding fees; fuel, oil, and repair costs; rent and lease payments; farm insurance premiums; mortgage and operating loan interest; freight, trucking, and storage; conservation project costs; and your depreciation schedules on Form 4562.

The Header: Name, Codes, and Accounting Method

Enter your name and Social Security number exactly as they appear on Form 1040. If your farm has its own Employer Identification Number, put it on the EIN line.

Line B asks for a Principal Product Code, a six-digit NAICS number identifying your main farming activity. The code list appears in Part IV of Schedule F itself.⁴ Choose the code that matches the product generating most of your revenue. A wheat farmer picks a different code than a cattle rancher.

Line C is your accounting method: cash or accrual. That choice determines whether you complete Part I or Part III for income. Line E asks whether you materially participated in the farm’s operation during the year. Check “Yes” if you did. Checking “No” triggers passive activity loss rules that can limit your deductions.⁵

Part I: Reporting Income Under the Cash Method

Cash-method filers report all farm income in Part I. Include cash received and the fair market value of goods or property received in exchange for farm products.

Line 1 covers sales of livestock and other items you bought for resale. Enter total sales, then subtract the cost or basis on line 1b. Only the profit carries forward.
Line 2 covers sales of livestock, produce, grains, and other products you raised. The full sale amount goes here, with no cost subtraction, because the raising expenses are deducted in Part II.
Lines 3a and 3b are for cooperative distributions from Form 1099-PATR: total received, then the taxable portion.
Lines 4a and 4b capture agricultural program payments (CRP, ARC, PLC, and other USDA payments).
Lines 5a and 5b are for Commodity Credit Corporation loans you elected to treat as income.
Line 6 reports crop insurance and disaster payments. You can sometimes defer crop insurance proceeds to the following year if you normally would have sold the crop then.
Line 7 captures custom hire income from machine work you did for other farmers.
Line 8 is other income that doesn’t fit elsewhere, such as fuel tax credits from prior years, state gas tax refunds, and bartering income.

Line 9 totals everything.¹

Part III: Reporting Income Under the Accrual Method

Accrual filers skip Part I and go to Part III. Report inventory values at the start and end of the year, along with sales and the cost of items purchased for resale. The math nets out to gross income from farming after inventory changes. Animals and crops must be included in inventory under this method.¹ Publication 225 walks through the unit-livestock-price method and other valuation approaches.

Part II: Deducting Farm Expenses

Part II is the same regardless of accounting method. Expense categories are listed alphabetically from line 10 (Car and truck expenses) through line 31 (Veterinary, breeding, and medicine). A few lines cause more confusion than the rest:

Line 12, conservation expenses, is capped at 25 percent of your gross income from farming, with any excess carried forward. The work must follow an approved conservation plan from the USDA Natural Resources Conservation Service or a comparable state agency. Costs for draining wetlands or installing center-pivot irrigation don’t qualify.⁶
Line 13, custom hire, is what you paid someone else to do machine work on your farm (harvesting, spraying, hauling).
Line 14 is depreciation and Section 179, taken from Form 4562. See below.
Line 22, labor hired, is wages paid to employees minus any employment credits you’re claiming.
Lines 24a and 24b split interest between farm real estate mortgages and operating loans.
Line 25 is employer contributions to pension and profit-sharing plans for your employees.
Line 32, other expenses, covers anything without a named line: soil testing, accounting fees, trade publication subscriptions.

One trap for cash-method filers: if prepaid farm supplies exceed 50 percent of your other deductible farm expenses, your deduction for those supplies may be limited to 50 percent of other expenses in the year you paid. The remainder shifts to the year you actually use them.¹

Depreciation on Line 14

Farm equipment, buildings, fences, drainage tile, and breeding livestock lose value over time, and the tax code lets you deduct that decline. Three options apply in the year you place property in service, and they can be combined. Everything flows through Form 4562 and lands on Schedule F, line 14.

Section 179 lets you deduct the full cost of qualifying equipment (tractors, combines, grain bins, livestock handling equipment) in the year you buy it, up to $2,560,000 for 2026. That cap phases out dollar-for-dollar once total equipment purchases pass $4,090,000. Your Section 179 deduction cannot exceed net taxable income from all your businesses for the year.
Bonus depreciation was reinstated as a permanent 100-percent first-year deduction for qualified property acquired after January 19, 2025. It applies to new and used property, including specified plants that are planted or grafted. Unlike Section 179, bonus depreciation can create or increase a net loss.⁷
MACRS depreciation spreads the remaining cost over the asset’s recovery period: 5 years for cars and light trucks, 7 years for most farm machinery, 10 years for single-purpose agricultural structures, 15 years for fencing and land improvements, and 20 years for general-purpose farm buildings.

Line 34: Getting to Net Profit or Loss and Where It Goes

Line 33 totals your Part II expenses. Line 34 subtracts line 33 from your gross income (line 9 for cash filers, or the gross income line from Part III for accrual filers). What’s left is your net farm profit or loss.

That number goes to two places. Enter it on Schedule 1 (Form 1040), line 6, so it flows into your adjusted gross income. Then carry it to Schedule SE (Form 1040), line 1a, because farm profits are subject to self-employment tax.⁵ If net earnings reach $400, you owe SE tax at a combined 15.3 percent on the first $176,100 of net self-employment income for 2025, plus 2.9 percent Medicare on any excess.³ Half of the SE tax comes back as an adjustment on Schedule 1.

Schedule F is not filed separately. It goes in with your Form 1040 package alongside Schedule SE, Form 4562, and any other attachments. E-filing bundles everything automatically.

Filing Deadlines Farmers Should Know

The standard individual return deadline is April 15, 2026, for the 2025 tax year, shifting to the next business day if that date falls on a weekend or holiday.⁸

Farmers get a real break on estimated tax. If at least two-thirds of your gross income (current year or prior year) comes from farming, you can skip quarterly estimated payments. Two choices apply:⁹

Pay one estimated tax installment by January 15, 2027 (for the 2026 tax year), covering what you expect to owe.
File your completed return and pay all tax due by March 1, 2027, with no estimated payment required.

The March 1 route eliminates estimated-tax penalties entirely, but only if you file and pay by that date. Miss it and you’re back to the April 15 deadline with potential underpayment penalties for skipping quarterly payments. Late filing itself triggers a failure-to-file penalty of 5 percent of unpaid tax per month, up to 25 percent.¹⁰ Form 4868 buys an automatic six-month filing extension, but it doesn’t extend the payment deadline.

Are You a Farmer for Schedule F Purposes?

Not every landowner with farm income files Schedule F. The right form depends on how involved you are in production:

Schedule F is for owners or lessees who materially participate in the farming operation, and for crop-share landlords who actively manage the farm.
Form 4835 is for crop-share landlords who don’t materially participate. Income there isn’t subject to self-employment tax.
Schedule E is for landlords who lease farmland for fixed cash rent. That’s rental income, not farm income.

Material participation means an ongoing, substantive role in production decisions, not just cashing tenant checks. Retired or disabled farmers qualify automatically if they materially participated in at least five of the eight years before they stopped. A surviving spouse who actively manages the farm can qualify if the estate meets certain special-valuation rules for farm property.⁵ Spouses who both materially participate in a jointly owned farm and file jointly can elect qualified joint venture treatment, each filing a separate Schedule F and Schedule SE rather than a partnership return.³

The operation also has to be genuinely for profit. An activity is presumed for-profit if it turned a profit in at least three of the last five tax years. For breeding, training, showing, or racing horses, the bar is two profitable years out of the last seven.¹¹ Falling short doesn’t automatically make you a hobby. The IRS weighs whether you keep businesslike records, depend on the income, devote real time and effort, and bring relevant expertise.¹² Get classified as a hobby and you lose the ability to deduct losses against your other income.

1
Internal Revenue Service. 2025 Instructions for Schedule F (Form 1040)
2
Office of the Law Revision Counsel. 26 U.S. Code 446 – General Rule for Methods of Accounting
3
Internal Revenue Service. Publication 225 – Farmer’s Tax Guide
4
Internal Revenue Service. Schedule F (Form 1040) – Profit or Loss From Farming
5
Internal Revenue Service. Instructions for Schedule F (Form 1040) (2025)
6
Office of the Law Revision Counsel. 26 U.S.C. 175 – Soil and Water Conservation Expenditures
7
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
8
Internal Revenue Service. When to File
9
Internal Revenue Service. Farming and Fishing Income
10
Internal Revenue Service. Failure to File Penalty
11
Internal Revenue Service. Is Your Hobby a For-Profit Endeavor?
12
Internal Revenue Service. Here’s How to Tell the Difference Between a Hobby and a Business for Tax Purposes