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Farmland Income and Deductions, Explained

May 10, 2016



If you are looking to purchase farm land for sale, there are a few things you need to know about income and deductions from these types of properties. For one, farms also include plantations, ranches, ranges, and orchards. On these lands, farmers can raise livestock, poultry or fish, as well as grown fruits and vegetables.

Much like the way farm owners work to preserve their land, the government works to preserve resources on that land. For this reason a limitation or conservation easement may be placed on a property to protect its natural resources.

Although employment for farmers and other jobs within the agricultural industry is estimated to decrease by 2% by 2024, there are still good reasons to invest in the farming business. Here are some useful facts you should know about taxes and farms:

  • Insurance payments from damage made to crops are accounted for as income. As a rule of thumb, these profits should be reported the same year that they are received.
  • Business expenses can include ordinary and necessary expenses and farmers can deduct these as such. Necessary expenses are ones that are appropriate for the business while ordinary expenses are those that are common and accepted by peers in the farming business.
  • Wages paid to farm employees both full and part-time can be deducted. Social security, Medicare and income taxes must all be withheld from employees’ wages.

  • Livestock and other items purchased for resale can be deducted if reported within the same year. Freight charges for transporting livestock to your farm are also included in the costs and can be deducted as well.
  • The interest paid off on a loan can be deducted only if it can be proven that the money was used for the farm business.
  • If in climate weather conditions force you to sell livestock as a result, reports of gains from the sale of the livestock may be postponed.
  • If the income your farm made is less than the reported deductible expenses for the year, there is a high possibility you may have a net operating loss. In this case, that loss can be carried over to other years and deducted. As a result, you may be eligible to receive a refund or reduce the amount of taxes to be paid in future years.

    In states like Montana, where the population is expected to grow 14% by 2043, food demands are increasing and the demand for farm land for sale is rising just as much. Now that you know some of the tax information associated with owning farm land for sale, you are in a better place to make an educated decision. Think of it as an investment in your future. Make your property make money for you.

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