What Is Form 4835: Farm Rental Income and Expenses

Form 4835, Farm Rental Income and Expenses, is the IRS form landowners use to report farm rental income received as a share of the crops or livestock a tenant produces on their land. It applies only when two things are true at once: you don’t materially participate in the farming, and your rent is paid as a portion of production rather than a flat cash amount.¹ Get either of those factors wrong and your income belongs on a different form.

Who Files Form 4835

Form 4835 is for the passive landowner who takes a crop share or livestock share as rent. If you are actively running the farm, or if your tenant pays a fixed dollar amount, this isn’t your form.

The Material Participation Test

Crop-share and livestock-share income becomes subject to self-employment tax when you materially participate in producing or managing the farm.² In that case, the income goes on Schedule F as earned farm income, not on Form 4835.³

The IRS uses seven tests for material participation. Meet any one and you materially participate:⁴

You participated in the farming activity for more than 500 hours during the tax year.
Your work made up substantially all the participation by anyone involved.
You participated more than 100 hours and at least as much as any other person.
The farm is a significant participation activity, and your combined hours across all such activities exceeded 500.
You materially participated in the activity for any 5 of the 10 preceding tax years.
You materially participated for any 3 preceding tax years (personal service fields only).
Based on the facts and circumstances, your participation was regular, continuous, and substantial.

If none of these describe you, Form 4835 is the right form. Filing it when you should have used Schedule F can leave unpaid self-employment tax on the table, and that tax runs 15.3 percent of net earnings.⁵

Share Rent vs. Cash Rent

Form 4835 only covers rent paid as a share of what the land produces. A flat annual dollar payment is cash rent, and cash rent goes on Schedule E, Part I, as ordinary rental income.⁶ The dividing line is whether your payment rises and falls with production.

A Note on CRP Payments

Conservation Reserve Program payments do not go on Form 4835, even though they look like rent from land you aren’t farming. All CRP annual rental payments are reported on Schedule F, line 4a, regardless of whether you materially participate.⁷

Reporting Income in Part I

On line 1 of Part I, you report the value of all livestock, produce, grains, and other crops you received as your share.⁶ Under both cash and accrual accounting, share rentals are reported in the year you convert them into money or its equivalent, which may not be the year of harvest.

Keep a running log of quantity and market price on the date you take possession or sell. Grain elevator receipts, livestock auction records, and local market reports back up the fair market values you use, and they matter if the IRS questions the figure.

Deductible Expenses in Part II

Part II lists the expenses you paid as landowner to support the tenant’s production. Typical entries include:

Chemicals, fertilizers, lime, and seeds you provided under the lease
Insurance premiums on the farm property
Mortgage interest on the farmland, as documented on your lender’s Form 1098
Freight, storage, and ginning fees tied to the crop share
Property taxes on the farm
Repairs and maintenance you paid on farm structures or equipment

Depreciation on Line 12

Line 12 handles depreciation and any Section 179 deduction on farm buildings, fences, drainage tile, and other capital assets you own on the property. The form points you to Publication 225, the Farmer’s Tax Guide, and the Form 4562 instructions to run the numbers.⁶ For many passive landowners, depreciation is the single largest deduction on the form, so accurate records of cost, placed-in-service date, and class life pay off.

The Conservation Expense Cap

Soil and water conservation expenses go on line 10, but the total deduction in any year cannot exceed 25 percent of your gross farming income. Anything over the cap carries forward, subject to the same 25 percent limit in each later year.⁸

How Losses Are Treated

Because Form 4835 income is passive by definition, a loss on the form is a passive loss. As a rule, you cannot use it to offset wages, self-employment income, or other nonpassive income.⁴

The $25,000 Special Allowance

If you actively participated in the farm rental, you may be able to deduct up to $25,000 of loss against nonpassive income. Active participation sits below the material participation bar; it generally means you helped make management decisions such as approving tenants, setting lease terms, or approving capital expenditures.⁴ You must also own at least 10 percent of the value of all interests in the activity.

The $25,000 allowance phases out as modified adjusted gross income climbs above $100,000 and disappears at $150,000. For married taxpayers filing separately who lived apart all year, the allowance is $12,500 and phases out starting at $50,000.

Form 8582

When Form 4835 shows a loss on line 32, you generally have to complete Form 8582, Passive Activity Loss Limitations, to see how much you can actually deduct this year. The exception is if you qualify under the rental real estate exception described in the Schedule E instructions. Any loss you can’t use carries forward and can offset passive income in later years.⁶

Where the Number Goes on Your Return

The net profit or loss from Form 4835 flows to Schedule E (Form 1040), Part V, line 40, labeled “Net farm rental income or (loss) from Form 4835.”⁹ From there it rolls into the Schedule E totals that feed your Form 1040. E-file software handles the transfer once you enter the Form 4835 data; a paper return needs Form 4835 attached with the Schedule E.

Income Averaging With Schedule J

If line 32 shows net income, Schedule J (Form 1040) lets you average that income over the prior three years, which can lower the bill in a high-earning year that would otherwise push you into a higher bracket.⁶ The calculation compares your current tax to what it would be with the farm income spread across four years.

Estimated Tax for Qualifying Farmers

Calendar-year taxpayers who earn at least two-thirds of their gross income from farming can make a single estimated payment by January 15 instead of four quarterly payments. They can also skip estimated payments entirely by filing the return and paying the tax by early March (March 2 for the 2025 tax year).¹⁰ Whether Form 4835 income by itself counts toward the two-thirds farming threshold depends on your overall income mix, so a tax professional’s read is worth the call if this is close.

Effect on Social Security Benefits

Income reported on Form 4835 does not count toward the Social Security earnings limit for retirees. The Social Security Administration excludes rental income from its earnings calculation unless the landowner materially participates in the farming.¹¹ Because Form 4835 is by definition for landowners who don’t materially participate, income on this form will not reduce your Social Security benefits.

1
Internal Revenue Service. About Form 4835, Farm Rental Income and Expenses
2
Office of the Law Revision Counsel. 26 USC 1402 – Definitions
3
Internal Revenue Service. Instructions for Schedule F (Form 1040)
4
Internal Revenue Service. Publication 925 (2025), Passive Activity and At-Risk Rules
5
Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
6
IRS.gov. Form 4835 – Farm Rental Income and Expenses
7
Internal Revenue Service. Conservation Reserve Program Annual Rental Payments and Self-Employment Tax
8
Internal Revenue Service. Farmer’s Tax Guide
9
Internal Revenue Service. 2025 Schedule E (Form 1040)
10
Internal Revenue Service. Farmers and Fishermen
11
Social Security Administration. 1213. What Rental Income Must Be Included in Calculating Earnings?