Ask SAM: Tax consequences for small acreage

This column is provided by Larimer County Extension's Small Acreage Management (SAM) Program to assist rural residents.

Dear SAM,

Can I claim my small acreage as a farm for income tax purposes?

Peytons

Dear Peytons,

Happy New Year! In Spanish, that would be "¡Felíz año nuevo!" In Yiddish, "a gut yohr!" In IRS language, "time to pay up."

The IRS considers that you have farm income if "...you cultivate, operate or manage a farm for profit, either as owner or tenant." Farms include crop, livestock and poultry operations, including ranches and rangelands.

Your neighbor with 160 acres of corn is obviously operating a farm. But what about people like you with five acres of hay growing behind your house?

If you sold the hay from your five acres, then you can file a Schedule F "Profit or Loss From Farming." This form allows you to claim farm expenses such as fertilizers, fuel and equipment. You can also deduct the cost of hiring a custom operator to harvest the hay. Vehicle and office expenses related to your hay production may also qualify as deductions.

If you kept the hay and fed it to livestock that you later sold, the hay production expenses can be deducted from the livestock sale proceeds.

If you kept the hay and fed it to your horses, you probably do not qualify as a farm and you cannot deduct your hay production expenses.

If you lease your land to others for farming, your tax status depends on your level of involvement in the farming operation. If you rent the land to a farmer but are not involved in management and operation of the farm, the money you receive is rental income. But if you are actively involved and assist the tenant farmer with farm operations, the lease proceeds become farm income.

These are a few considerations when filing tax returns for your farm. To learn more, attend "Optimizing Farm Taxes" sponsored by Larimer County Extension. Jeff Tranel, CSU Extension ag and business management economist, will lead the program. Information will be relevant to both large and small operations. The class will be held on Jan. 31 from 2 to 4 p.m. at The Ranch. Registration is $10/person, $15/couple. Space is limited. Preregister by calling Larimer County Extension at 498-6003.

SAM

Have a question about rural living? Write to Ask SAM, Larimer County Cooperative Extension, 1525 Blue Spruce Drive, Fort Collins, CO 80524 or e-mail emarx@larimer.org.