Claiming a loss with the IRS

[jhwis]

What is your experience on claiming a loss on schedule F? How many years in a row have you and have you ever been audited,etc?

 

[NY 986]

What is your experience on claiming a loss on schedule F? How many years in a row have you and have you ever been audited,etc?

Big difference between a real loss which can be proven via simple math versus making estimates such as damage to an orchard from a weather event. Can you be more specific?

 

[jhwis]

Sure, claiming an actual loss on IRS schedule F Part II, line 34...net farm profit or loss.

 

[flying belgian]

Raising hogs in the 80s I think I claimed a loss 3 times. Not in a row. I lost so much money the IRS form was the least of my worries.

 

[NY 986]

Sure, claiming an actual loss on IRS schedule F Part II, line 34...net farm profit or loss.

A couple years should be no problem but several years back to back to back might draw somebody's attention with the government. In my opinion it is all about whether the Feds have bigger fish to fry at the time and how much pressure might be coming from congress.

 

[Tx Jim]

I've been filling Schedule F on my income tax return since 1988. I filed a loss on several different years. I always had a CPA fill out my income tax return. "Knock on Wood" I've never been audited by the IRS.

 

[BarnyardEngineering]

My Dad did the farm taxes for 44 years. He filed a loss more often than a profit over all those years. He had all his i's crossed and his t's dotted, and they never audited him that I'm aware of.

 

[Bob Bancroft]

What is your experience on claiming a loss on schedule F? How many years in a row have you and have you ever been audited,etc?

I've never done it. I saw somewhere that after three years in a row they get interested.

 

[jhwis]

I've never done it. I saw somewhere that after three years in a row they get interested.

I've heard that as well.

 

[BarnyardEngineering]

I've never done it. I saw somewhere that after three years in a row they get interested.

That's on small business returns. Don't know if it's the same for farms as they know farming is generally not a highly profitable venture.

BTW, I myself filed a small loss for 2023 and it's looking like the same for 2024. I still paid federal and state income taxes through my day job. All it did was get me a little more of a refund.

 

[JOCCO]

I have heard the 3-year thing for many years. It can draw attention if it's offsetting your regular jobs income. Also issues with say your farming costs are $100,000 a year but income is only $50,000 a year. Where did you get the other $50? I would strongly advise seeing a tax professional or accountant. Some cases you can carry a lose forward, again get some help.

 

[paul]

My understanding is there is no actual number of years limit.

The requirement is that you are conducting a farm business to be profitable at some point. Not to use as a tax shelter tax dodge.

Nearly all farm operations will lose more than they make the first 5 years. But your business plan should be that those initial investments should lead to a profitable farm in normal conditions over a decade.

But thrn - 3 years in you find a different farming enterprise might be better, so you change from hogs to beef, or cattle to grain, and you have a big huge investment in the new direction.

Then you run into terrible weather for 2 of the next 5 years or your poultry flock got the poultry flu. And so your still losing money despite your best efforts.

All this is fine by the irs, as long as on paper you can document how things should have realistically worked and is/ would have been a real business with realistic profitability projections if things had worked out under normal situation.

The common thought is if you are profitable 3 out of 5 years you aren’t a problem, if you are worst than that AND have a much better other income source, they might look at you a bit closer to see that you are trying to run a real farming business. As they probably should.

Paul

 

[jhwis]

My understanding is there is no actual number of years limit.

The requirement is that you are conducting a farm business to be profitable at some point. Not to use as a tax shelter tax dodge.

Nearly all farm operations will lose more than they make the first 5 years. But your business plan should be that those initial investments should lead to a profitable farm in normal conditions over a decade.

But thrn - 3 years in you find a different farming enterprise might be better, so you change from hogs to beef, or cattle to grain, and you have a big huge investment in the new direction.

Then you run into terrible weather for 2 of the next 5 years or your poultry flock got the poultry flu. And so your still losing money despite your best efforts.

All this is fine by the irs, as long as on paper you can document how things should have realistically worked and is/ would have been a real business with realistic profitability projections if things had worked out under normal situation.

The common thought is if you are profitable 3 out of 5 years you aren’t a problem, if you are worst than that AND have a much better other income source, they might look at you a bit closer to see that you are trying to run a real farming business. As they probably should.

Paul

Sounds plausible

 

[Keith Williams]

What is your experience on claiming a loss on schedule F? How many years in a row have you and have you ever been audited,etc?

I have been filing 1040 Schedule F since 1979. I have never been audited.
My understanding is that if you do not show a profit in 3 years of a 5 year period, you are considered to be engaged in a hobby.
I could usually manipulate my input buying timing to achieve that.
YMMV
Keith

 

[Rich'sToys]

He had all his i's crossed and his t's dotted....

Funny that didn't get their attention!

 

[BarnyardEngineering]

I have heard the 3-year thing for many years. It can draw attention if it's offsetting your regular jobs income. Also issues with say your farming costs are $100,000 a year but income is only $50,000 a year. Where did you get the other $50? I would strongly advise seeing a tax professional or accountant. Some cases you can carry a lose forward, again get some help.

It's coming from your day job, and if you can prove that you actually spent that $50,000, there's not a bloody thing they can do about it.

 

[NoDakInMN]

The consecutive losses year after year tend to draw attention if they are to the extent that it becomes a question of how you can stay in business after sustaining such losses. If the losses are such that it doesn't deplete your equity or cash reserves, that's one thing, or if you lose money but can stay afloat due to off farm income. But if you are losing vast sums of money each year but continue to stay in business with no way to offset the losses, that tends to smell funny.

 

[TomA in CA]

I have filed Schedule F for over 60 years . Drew some attention when I didn't file '76-'80, had to make it up. Audit, never. Profit seldom.

 

[Texasmark]

My problem is after 45 years of owning this small farm (STO), and having to be in some sort of agricultural arrangement to keep my county taxes within reason, times and conditions change. Used to be I had no money and no equipment. Then I started accumulating equipment and now at 83 I am buying more because I work alone and need equipment to do jobs I once could do my self. This keeps my depreciation pretty high.

Then when I moved out here, one could lease lots of land around here so I bought cattle as I could afford them and put them on leased land. Back in 2014, I decided I was through getting in a corral with a 3000# bull with an attitude so I sold off the cattle.

So I started doing hay as working alone, I wasn't up to row crops. Hay doesn't produce all that much income so my IRA helps me to keep paying the bills and running the farm. IRS doesn't have a problem seeing that income as its a known fact that on a Conventional IRA you are required to take out a certain percentage of that retirement to expose it to income taxation...a line on the 1040 for that entry, a couple of lines above your SS income and how much of it is taxable.

Well now that my county has blossomed I have a road pretty much fully occupied by new residents whereby that land used to be up fro rent. Can't make hay when you don't have any ground. On the bright side, most of my neighbors are urban transplants and have no experience nor tools to maintain their property. That offers me the opportunity to make additional farm income to help my Schedule F show a profit.....but that fluctuates too.

So, right now I don't know where I am headed. I am going to die in my current house built in 1979 as I own everything on the property and the property, free and clear. I couldn't afford to move anywhere else and besides, I would rather live here than anywhere else.

So, I just have to play it by ear, year by year, hoping that I stay in good favor with Uncle Sugar.

 

[jhwis]

My problem is after 45 years of owning this small farm (STO), and having to be in some sort of agricultural arrangement to keep my county taxes within reason, times and conditions change. Used to be I had no money and no equipment. Then I started accumulating equipment and now at 83 I am buying more because I work alone and need equipment to do jobs I once could do my self. This keeps my depreciation pretty high.

Then when I moved out here, one could lease lots of land around here so I bought cattle as I could afford them and put them on leased land. Back in 2014, I decided I was through getting in a corral with a 3000# bull with an attitude so I sold off the cattle.

So I started doing hay as working alone, I wasn't up to row crops. Hay doesn't produce all that much income so my IRA helps me to keep paying the bills and running the farm. IRS doesn't have a problem seeing that income as its a known fact that on a Conventional IRA you are required to take out a certain percentage of that retirement to expose it to income taxation...a line on the 1040 for that entry, a couple of lines above your SS income and how much of it is taxable.

Well now that my county has blossomed I have a road pretty much fully occupied by new residents whereby that land used to be up fro rent. Can't make hay when you don't have any ground. On the bright side, most of my neighbors are urban transplants and have no experience nor tools to maintain their property. That offers me the opportunity to make additional farm income to help my Schedule F show a profit.....but that fluctuates too.

So, right now I don't know where I am headed. I am going to die in my current house built in 1979 as I own everything on the property and the property, free and clear. I couldn't afford to move anywhere else and besides, I would rather live here than anywhere else.

So, I just have to play it by ear, year by year, hoping that I stay in good favor with Uncle Sugar.

Eighty-three and still plugging away. Impressive.