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We own farm property that we cash rent and report on

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Hello, we own farm...

Hello, we own farm property that we cash rent and report on Schedule E. Last year we had terracing and drain tile work performed to repair and control erosion. This work was reimbursed at approximately 75% by the state. so, of the $20,332That we paid the state reimbursed $15,048. We received a 1099 MISC for this amount and the footnotes indicate this would normally be reported on 1040 line 21. My 2 questions are: is there another way to report this $15,048 other than as "Other Income" on line 21; and, is there any way we can deduct our of of pocket expense of $5284 on schedule E, perhaps as a repair expense on line 14? Thank You

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Submitted: 3 months ago.Category: Tax
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3/29/2018
Tax Professional: Lev, Tax Advisor replied 3 months ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,117
Experience: Taxes, Immigration, Labor Relations
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Because that is related to the property involved into farming activity - that amount woudl be reported as your farming income

and you will deduct the full cost - including the part you paid - on scheduled F.

It would be normally be reported on 1040 line 21 if that were your personal property.

.

Then - how to deduct expenses?
That will be considered "land improvements" - you will need to capitalize that cost - and it will be depreciated over 15 year period.

Please be aware that land and land improvements do not qualify as section 179 property.

However, agricultural fences do qualify as section 179 property. Similarly, field drainage tile also qualifies as section 179 property.

Let me know if that helps.

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Customer reply replied 3 months ago
Hello, I don't believe that schedule F is applicable here. As I stated in my question, we rent the ground for a flat cash price (cash rent) . Because of this, we do not materially participate in the farming operations. Can you review your answer?
Tax Professional: Lev, Tax Advisor replied 3 months ago

Sorry for confusion...

In this case - your only option is to depreciate "land improvements" over 15 year period.

That is regardless if you choose to report that income on 1040 line 21 or on schedule E as rental income.

If that land is used to produce income - you may deduct capital investments via depreciation.

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Customer reply replied 3 months ago
The rental income we receive for the land is reported on schedule E. However, the $15,048 I have asked about isn't rental income, it is a reimbursement from the state of Missouri as part of a soil conservation program. Also, there is no way to depreciate income listed on 1040 line 21. So far both answers you have given would have me in trouble with the IRS. It seems you are out of your area of expertise here, So I would just like a refund of my $46.
Tax Professional: Lev, Tax Advisor replied 3 months ago

You are not depreciating income - but you depreciating capitalized EXPENSES...

Income is added to other taxable income.

Sorry for confusion.
However - your satisfaction is 100% guaranteed - and you may request full refund.

I will forward your statement to the customer service.

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Customer reply replied 3 months ago
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