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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
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Experience:  15years with H & R Block. Divisional leader, Instructor
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I am 28 years old, I do not live with my parents, I claim myself

Resolved Question:

I am 28 years old, I do not live with my parents, I claim myself on my tax return. I have justed started a farm on property owned by my parents. I do not pay rent for the land and my parents take no part in operating the farm. The farm is operated as a business, I have a formal business plan and accounting records. My primary income is from an off-farm job. Can I deduct my farm business expenses even if I do not own or rent the farm land?
Submitted: 2 years ago.
Category: Tax
Expert:  Robin D. replied 2 years ago.

Robin D :

Hello and thank you for using Just Answer.
According to the IRS definition of a farm business is that you be owner or tenant. You are going to need to come up with some sort of arrangement with your parents to make you the tenant of the land.
If you operate a farm for profit, you can deduct all the ordinary and necessary expenses of carrying on the business of farming on Schedule F. However, if you do not carry on your farming activity, or other activity you engage or invest in, to make a profit, you report the income from the activity on line 21 of Form 1040(As a hobby) and you can deduct expenses of carrying on the activity only if you itemize your deductions on Schedule A (Form 1040). Also, there is a limit on the deductions you can take. You cannot use a loss from that activity to offset income from other activities.
Your farming or other activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year.
Since you are starting out in farming and do not have 3 years showing a profit, you may want to take advantage of the presumption later, after you have had the 5 years of experience allowed by the test. You can choose to do this by filing Form 5213. Filing this form postpones any determination that your farming activity is not carried on for profit until 5 years have passed since you first started farming.

Customer:

Thank-you your answer is very helpful. If I pay my parents rent for the land then I should qualify. I do not want this to negatively impact my parents (make them pay more taxes). Can we set the rent a $1 or something like that?

Robin D :

You can lease the land from them for a nominal fee that is yearly. The amount should not be a problem but they would need to add it to their return.

Customer:

Ok, thanks for your help.

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7870
Experience: 15years with H & R Block. Divisional leader, Instructor
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Robin D.
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15years with H & R Block. Divisional leader, Instructor