These expenses can be deducted only if they are consistent with a conservation plan approved by the Natural Resources Conservation Service of the Department of Agriculture for the area in which your land is located. If no plan exists, the expenses must be consistent with a plan of a comparable state agency. You cannot deduct the expenses if they were paid or incurred for land used in farming in a foreign country.

Do not deduct expenses you paid or incurred to drain or fill wetlands, to prepare land for center pivot irrigation systems, or to clear land.

Your deduction cannot exceed 25% of your gross income from farming (excluding certain gains from selling assets such as farm machinery and land). If your conservation expenses are more than the limit, the excess can be carried forward and deducted in later tax years. However, the amount deductible for any 1 year cannot exceed the 25% gross income limit for that year.

For details, see Pub. 225.

taxmap/instr/i1040sf-006.htm#TXMP3b64cad4 Line 15

Enter amounts paid for custom hire or machine work (the machine operator furnished the equipment).

Do not include amounts paid for rental or lease of equipment that you operated yourself. Instead, report those amounts on line 26a.

taxmap/instr/i1040sf-006.htm#TXMP5d926496 Line 16

You can deduct depreciation of buildings, improvements, cars and trucks, machinery, and other farm equipment of a permanent nature.

Do not deduct depreciation on your home, furniture or other personal items, land, livestock you bought or raised for resale, or other property in your inventory.

You can also elect under section 179 to expense a portion of the cost of certain property you bought in 2007 for use in your farming business. The section 179 election is made on Form 4562.

For information about depreciation and the section 179 deduction, see Pub. 946.

For details on the increased depreciation and section 179 deductions for qualified property in the GO Zone, see Pub. 225.Replace Pub. 225 with Pub. 946 if coverage in 225 insufficient. Also, IRC 1400N(d) expires on 1/1/08.

See the Instructions for Form 4562 for information on when you must complete and attach Form 4562.

taxmap/instr/i1040sf-006.htm#TXMP2a955400 Line 17

Deduct contributions to employee benefit programs that are not an incidental part of a pension or profit-sharing plan included on line 25. Examples are accident and health plans, group-term life insurance, and dependent care assistance programs. If you made contributions on your behalf as a self-employed person to a dependent care assistance program, complete Form 2441, Parts I and III, to figure your deductible contributions to that program.

Contributions you made on your behalf as a self-employed person to an accident and health plan or for group-term life insurance are not deductible on Schedule F. However, you may be able to deduct on Form 1040, line 29 (or on Form 1040NR, line 28), the amount you paid for health insurance on behalf of yourself, your spouse, and dependents even if you do not itemize your deductions. See the instructions for Form 1040, line 29, or Form 1040NR, line 28, for details.

taxmap/instr/i1040sf-006.htm#TXMP45d5b66f Line 18

If you use the cash method, you cannot deduct when paid the cost of feed your livestock will consume in a later year unless all of the following apply.

• The payment was for the purchase of feed rather than a deposit.
• The prepayment had a business purpose and was not made merely to avoid tax.
• Deducting the prepayment will not materially distort your income.

If all of the above apply, you can deduct the prepaid feed when paid, subject to the overall limit for Prepaid farm supplies explained on page F-4. If all of the above do not apply, you can deduct the prepaid feed only in the year it is consumed.

taxmap/instr/i1040sf-006.htm#TXMP60236da0 Line 20

Do not include the cost of transportation incurred in purchasing livestock held for resale as freight paid. Instead, add these costs to the cost of the livestock, and deduct them when the livestock is sold.

taxmap/instr/i1040sf-006.htm#TXMP71d2f34c Line 22

Deduct on this line premiums paid for farm business insurance. Deduct on line 17 amounts paid for employee accident and health insurance. Amounts credited to a reserve for self-insurance or premiums paid for a policy that pays for your lost earnings due to sickness or disability are not deductible.

taxmap/instr/i1040sf-006.htm#TXMP001e3fdd Lines 23a and 23b

taxmap/instr/i1040sf-006.htm#TXMP12864746 Interest allocation rules.

The tax treatment of interest expense differs depending on its type. For example, home mortgage interest and investment interest are treated differently. Interest allocation rules require you to allocate (classify) your interest expense so it is deducted on the correct line of your return and receives the right tax treatment. These rules could affect how much interest you are allowed to deduct on Schedule F.

Generally, you allocate interest expense by tracing how the proceeds of the loan are used. See Pub. 535 for details.

If you paid interest on a debt secured by your main home and any of the proceeds from that debt were used in your farming business, see Pub. 535 to figure the amount to include on lines 23a and 23b.

taxmap/instr/i1040sf-006.htm#TXMP56459135 How to report.

If you have a mortgage on real property used in your farming business (other than your main home), enter on line 23a the interest you paid for 2007 to banks or other financial institutions for which you received a Form 1098 (or similar statement). If you did not receive a Form 1098, enter the interest on line 23b.

If you paid more mortgage interest than is shown on Form 1098, see Pub. 535 to find out if you can deduct the additional interest. If you can, include the amount on line 23a. Attach a statement to your return explaining the difference and enter See attached in the margin next to line 23a.

If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on the mortgage and the other person received the Form 1098, include your share of the interest on line 23b. Attach a statement to your return showing the name and address of the person who received the Form 1098. In the margin next to line 23b, enter See attached.

Do not deduct interest you prepaid in 2007 for later years; include only the part that applies to 2007.

taxmap/instr/i1040sf-006.htm#TXMP674ea987 Line 24

Enter the amounts you paid for farm labor. Do not include amounts paid to yourself. Reduce your deduction by the amounts claimed on:

• Form 5884, Work Opportunity Credit, line 2;
• Form 8844, Empowerment Zone and Renewal Community Employment Credit, line 2;
• Form 8845, Indian Employment Credit, line 4; and
• Form 8861, Welfare-to-Work Credit, line 2.2009 is last year – can be a 2-yr credit for employees who begin work before 1/1/08.

Include the cost of boarding farm labor but not the value of any products they used from the farm. Include only what you paid household help to care for farm laborers.

If you provided taxable fringe benefits to your employees, such as personal use of a car, do not include in farm labor the amounts you depreciated or deducted elsewhere.

taxmap/instr/i1040sf-006.htm#TXMP10499911 Line 25

Enter your deduction for contributions to employee pension, profit-sharing, or annuity plans. If the plan included you as a self-employed person, enter contributions made as an employer on your behalf on Form 1040, line 28 (or on Form 1040NR, line 27), not on Schedule F.

Generally, you must file the applicable form listed below if you maintain a pension, profit-sharing, or other funded-deferred compensation plan. The filing requirement is not affected by whether or not the plan qualified under the Internal Revenue Code, or whether or not you claim a deduction for the current tax year. There is a penalty for failure to timely file these forms.

taxmap/instr/i1040sf-006.htm#TXMP50b610e9 Form 5500-EZ.

File this form if you have a one-participant retirement plan that meets certain requirements. A one-participant plan is a plan that only covers you (or you and your spouse).

taxmap/instr/i1040sf-006.htm#TXMP5abdeafc Form 5500.

File this form for a plan that does not meet the requirements for filing Form 5500-EZ.

For details, see Pub. 560.

taxmap/instr/i1040sf-006.htm#TXMP64bfff24 Lines 26a and 26b

If you rented or leased vehicles, machinery, or equipment, enter on line 26a the business portion of your rental cost. But if you leased a vehicle for a term of 30 days or more, you may have to reduce your deduction by an inclusion amount. See Leasing a Car in Pub. 463 to figure your inclusion amount.

Enter on line 26b amounts paid to rent or lease other property such as pasture or farmland.

taxmap/instr/i1040sf-006.htm#TXMP01b807c3 Line 27

Enter amounts you paid for incidental repairs and maintenance of farm buildings, machinery, and equipment that do not add to the value of the property or appreciably prolong its life. You can also include what you paid for tools of short life or minimal cost, such as shovels and rakes.

Do not deduct repairs or maintenance on your home.

taxmap/instr/i1040sf-006.htm#TXMP0e3f6c49 Line 31

You can deduct the following taxes on this line.

• Real estate and personal property taxes on farm business assets.
• Social security and Medicare taxes you paid to match what you are required to withhold from farm employees' wages.
• Federal unemployment tax.
• Federal highway use tax.

Do not deduct the following taxes on this line.

• Federal income taxes, including your self-employment tax. However, you can deduct one-half of your self-employment tax on Form 1040, line 27.
• Estate and gift taxes.
• Taxes assessed for improvements, such as paving and sewers.
• Taxes on your home or personal use property.
• State and local sales taxes on property purchased for use in your farming business. Instead, treat these taxes as part of the cost of the property.
• Other taxes not related to your farming business.

taxmap/instr/i1040sf-006.htm#TXMP68c9c20d Line 32

Enter amounts you paid for gas, electricity, water, and other utilities for business use on the farm. Do not include personal utilities. You cannot deduct the base rate (including taxes) of the first telephone line into your residence, even if you use it for your farming business. But you can deduct expenses you paid for your farming business that are more than the cost of the base rate for the first phone line. For example, if you had a second phone line, you can deduct the business percentage of the charges for that line, including the base rate charges.

taxmap/instr/i1040sf-006.htm#TXMP6c99f47b Lines 34a Through 34f

Include all ordinary and necessary farm expenses not deducted elsewhere on Schedule F, such as advertising, office supplies, etc. Do not include fines or penalties paid to a government for violating any law.

taxmap/instr/i1040sf-006.htm#TXMP212be027 At-risk loss deduction.

Any loss from this activity that was not allowed as a deduction last year because of the at-risk rules is treated as a deduction allocable to this activity in 2007. However, for the loss to be deductible, the amount at risk must be increased.

taxmap/instr/i1040sf-006.htm#TXMP525b3477 Bad debts.

See Pub. 535.

taxmap/instr/i1040sf-006.htm#TXMP43f280b4 Business start-up costs.

If your business began in 2007, you can elect to deduct up to $5,000 of certain business start-up costs. This limit is reduced (but not below zero) by the amount by which your start-up costs exceed $50,000. You can amortize any remaining qualified business start-up costs over 180 months. For details, see Pub. 225. For amortization that begins in 2007, you must complete and attach Form 4562.

taxmap/instr/i1040sf-006.htm#TXMP1c937357 Business use of your home.

You may be able to deduct certain expenses for business use of your home, subject to limitations. Use the worksheet in Pub. 587 to figure your allowable deduction. Do not use Form 8829.

taxmap/instr/i1040sf-006.htm#TXMP700a4197 Forestation and reforestation costs.

Reforestation costs are generally capital expenditures. However, for each qualified timber property, you can elect to expense up to $10,000 ($5,000 if married filing separately) of qualifying reforestation costs paid or incurred in 2007. This limit is increased for small timber producers with qualified timber property located in the GO Zone, the Rita GO Zone, or the Wilma GO Zone. For GO Zone information, see Pub. 4492.

You can elect to amortize the remaining costs over 84 months.

The amortization election does not apply to trusts and the expense election does not apply to estates and trusts. For details on reforestation expenses, see Pub. 225. For amortization that begins in 2007, you must complete and attach Form 4562.

taxmap/instr/i1040sf-006.htm#TXMP64a52e09 GO Zone clean-up costs.

You can deduct 50% of any qualified GO Zone clean-up costs paid or incurred in 2007 for the removal of debris from, or the demolition of structures on, real property located in the GO Zone that is used in your farming business. The rest of the GO Zone clean-up costs must be capitalized. See Pub. 4492 for the areas included in the GO Zone and the applicable dates for this deduction.IRC 1400N(f) ends after 2007.

taxmap/instr/i1040sf-006.htm#TXMP600b2d1f Legal and professional fees.

You can include on this line fees charged by accountants and attorneys that are ordinary and necessary expenses directly related to your farming business. Include fees for tax advice and for the preparation of tax forms related to your farming business. Also include expenses incurred in resolving asserted tax deficiencies related to your farming business.

taxmap/instr/i1040sf-006.htm#TXMP4933a37d Travel, meals, and entertainment.

Generally, you can deduct expenses for farm business travel and 50% of your business meals and entertainment. But there are exceptions and limitations. See the instructions for Schedule C, lines 24a and 24b, that begin on page C-6.

taxmap/instr/i1040sf-006.htm#TXMP4ed003be Preproductive period expenses.

If you had preproductive period expenses in 2007 that you are capitalizing, enter the total of these expenses in parentheses on line 34f and enter 263A in the space to the left of the total.

For details, see page F-4, Capitalizing costs of property, and Pub. 225.

taxmap/instr/i1040sf-006.htm#TXMP0952a852 Line 35

If line 34f is a negative amount, subtract the amount on line 34f from the total of lines 12 through 34e. Enter the result on line 35.

taxmap/instr/i1040sf-006.htm#TXMP6fa40614 Line 36

If you have a loss, the amount of loss you can deduct this year may be limited. Individuals, estates, and trusts must complete line 37 before entering the loss on line 36. If you checked the No box on line E, also see the Instructions for Form 8582.

Enter the net profit or deductible loss here and on Form 1040, line 18, and Schedule SE, line 1. Nonresident aliens—enter the net profit or deductible loss here and on Form 1040NR, line 19. Estates and trusts—enter the net profit or deductible loss here and on Form 1041, line 6. Partnerships—do not complete line 37; instead, stop here and enter the profit or loss on this line and on Form 1065, line 5 (or Form 1065-B, line 7).

taxmap/instr/i1040sf-006.htm#TXMP48ac48b8 Community income.

If you and your spouse had community income and are filing separate returns, see page SE-2 of the instructions for Schedule SE before figuring self-employment tax.

taxmap/instr/i1040sf-006.htm#TXMP2da77ecc Earned income credit.

If you have a net profit on line 36, this amount is earned income and may qualify you for the earned income credit if you meet certain conditions. See the instructions for Form 1040, lines 66a and 66b, for details.

taxmap/instr/i1040sf-006.htm#TXMP18a33682 Line 37

taxmap/instr/i1040sf-006.htm#TXMP680bf2ed At-risk rules.

Generally, if you have a loss from a farming activity and amounts invested in the activity for which you are not at risk, you must complete Form 6198 to figure your allowable loss. The at-risk rules generally limit the amount of loss (including loss on the disposition of assets) you can claim to the amount you could actually lose in the activity.

Check box 37b if you have amounts invested in this activity for which you are not at risk, such as the following.

• Nonrecourse loans used to finance the activity, to acquire property used in the activity, or to acquire the activity that are not secured by your own property (other than property used in the activity). However, there is an exception for certain nonrecourse financing borrowed by you in connection with holding real property.
• Cash, property, or borrowed amounts used in the activity (or contributed to the activity, or used to acquire the activity) that are protected against loss by a guarantee, stop-loss agreement, or other similar arrangement (excluding casualty insurance and insurance against tort liability).
• Amounts borrowed for use in the activity from a person who has an interest in the activity, other than as a creditor, or who is related under section 465(b)(3)(C) to a person (other than you) having such an interest.

taxmap/instr/i1040sf-006.htm#TXMP33e2060a Figuring your deductible loss.

If all amounts are at risk in this activity, check box 37a. If you checked the Yes box on line E, enter your loss on line 36. But if you checked the No box on line E, you may need to complete Form 8582 to figure your allowable loss to enter on line 36. See the Instructions for Form 8582.

If you checked box 37b, first complete Form 6198 to determine the amount of your deductible loss. If you checked the Yes box on line E, enter that amount on line 36. But if you checked the No box on line E, your loss may be further limited. See the Instructions for Form 8582. If your at-risk amount is zero or less, enter -0- on line 36. Be sure to attach Form 6198 to your return. If you checked box 37b and you do not attach Form 6198, the processing of your tax return may be delayed.

Any loss from this activity not allowed for 2007 only because of the at-risk rules is treated as a deduction allocable to the activity in 2008.

For details, see Pub. 925 and the  
Instructions for Form 6198.

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