Farm Rental form 4835 and Land Rental

[BHoffman]

I have a client who lives in AZ and owns land in KS.

Her nephew runs the farm, about 22 acres.  The farm grows corn and soybeans..  Is this reported on form 4835?  2016 resulted in a $2,000 loss.  She talks frequently on the phone to her nephew about the farm, and she keeps track of the checking account.  She deposits her own money when the balance is low.  Does that qualify for active participation?  I'm thinking yes. 

She also owns a few acres in KS and rents that land to a guy who uses it to graze his cattle for a flat $5,100 per year.  Do I report that on Sch E? 

Does she need to file a KS tax return?  It appears that both the 4835 loss and the $5100 rental income are exempt on a KS return.

Thanks!

 

[Lion EA]

I grow corn and soybeans in IL and have sharecroppers who pay me both cash rent and via crop shares.  My tax return includes Schedules E and 4835.  I file a non-resident IL return.  I don't know much more than that, because I don't have any farmer clients in Fairfield County, CT.  I just do what my cousins do because they own a lot more land than I do, have been farming for much longer, and their land is contiguous to mine.

[RitaB]

14 hours ago, BHoffman said:

I have a client who lives in AZ and owns land in KS.

Her nephew runs the farm, about 22 acres.  The farm grows corn and soybeans..  Is this reported on form 4835?  2016 resulted in a $2,000 loss...

She also owns a few acres in KS and rents that land to a guy who uses it to graze his cattle for a flat $5,100 per year.  Do I report that on Sch E? 

I think 4835 is for when you rent your farm and are paid based on how well the tenant does and the tenant files a Sch F.  It sounds like nephew is working for Aunt's Sch F endeavor, if the corn and soybean farming is being reported on Aunt's return.  Does nephew file Sch F?  I may not understand the situation, but somebody should be filing a Sch F. 

Flat rate rental of farm land belongs on Sch E and the tenant files a Sch F.

https://www.irs.gov/pub/irs-pdf/f4835.pdf

 

[BHoffman]

Thank you!  The nephew works the farmer as a favor to his aunt - my client - because he will inherit the farm from her.  I need to find out whether he files a Sch F.  The 1099PATR forms come to her, and all of the sales proceeds and farm expenses are run through one checking account that is in her name but he is also a signer.  The nephew does not pay her anything, and she does not pay him for his labor.  He is otherwise retired.

If he doesn't file a Sch F, then she should file that form instead of form 4835?

Background:  Her brother used to own and run the farm and filed Sch F.  His tax preparer would give my client a 4835 form as a worksheet and I used to input that.  The brother died, and she inherited the farm.  

I think I have some questions now that will clear this up!

 

[RitaB]

1 hour ago, BHoffman said:

Thank you!  The nephew works the farmer as a favor to his aunt - my client - because he will inherit the farm from her.  I need to find out whether he files a Sch F.  The 1099PATR forms come to her, and all of the sales proceeds and farm expenses are run through one checking account that is in her name but he is also a signer.  The nephew does not pay her anything, and she does not pay him for his labor.  He is otherwise retired.

If he doesn't file a Sch F, then she should file that form instead of form 4835?

Background:  Her brother used to own and run the farm and filed Sch F.  His tax preparer would give my client a 4835 form as a worksheet and I used to input that.  The brother died, and she inherited the farm.  

I think I have some questions now that will clear this up!

Oh, wow, you're welcome, I just thought I'd say something because of the cricket sounds. 

Yes, if aunt is reporting the whole ball of wax, I would use Sch F for her.  Absolutely.

And I would do more favors for people if they'd put me in their will, just sayin.

[BHoffman]

Just got off the phone with nephew.  She has an unrelated tenant who grows grains and pays her with a portion of his yield which she sells immediately, hence the 1099PATR forms.  She pays for some fertilizer.  The tenant farmer reports on Sch F.  She reports on 4835.  The nephew grows nothing and does no farming, he just looks after things.

Question:  She spent $4900 to repair/maintain a pond on the land she rents to the cattle grazer.  Is that an expense or an addition to the land basis?  I think this has to be done periodically because the cattle get water there and beat up the edges of the pond.

 

[BHoffman]

PS. The aunt is in her 80s and extremely chatty so it's hard to separate the wheat from the chaff in our conversations as she ignores my tax related questions or is foggy, but I know all about the local gossip. The nephew was a great source of explanation. 

[Max W]

The $4900 is ongoing maintenance and not an improvement.  Besides, Land does not come under the 2% De minimus rule.

[BHoffman]

You guys are golden!!!!  One more dumb question:  Drake software is giving me a note that says if form 4835 is present, the due date of the return is March 1st.  Is that true?

Also, there is no tax due to KS on the net KS income from Sch E and 4835 of $2062.  I expected that after reading the state instructions, but wonder if anyone has anything other advice about that?

[DANRVAN]

17 minutes ago, BHoffman said:

You guys are golden!!!!  One more dumb question:  Drake software is giving me a note that says if form 4835 is present, the due date of the return is March 1st.  Is that true

No. There is a general misunderstanding that farmers must file by March 1st.  However they can avoid paying estimated tax penalties if filed by the March 1, provided that 2/3 of their gross income is from farming; that includes gross income from form 4835.

Form 4835 is used when rent is based on production, such as a percentage of the crop sales or calves sold.  The land lord shares part of the risk.

In regards to the pasture rent, that would go on schedule E, unless the rent is based on percent of gain. That would be the case if tenant was grazing steers and rent was based on how much they gained. In that case 4835 would be used since landlord is taking risk.  Percent of production arrangements usually qualities the property for special use valuation under section 2032A for estates.

In regards to the pond work, it depends on whether is was routine maintenance or major overhaul.