What is the Difference Between Schedule F and Form 4835?
Did you know that farming income can either be reported on Schedule F or Form 4835 in your borrower’s tax return? An analyst recently reached out to our experts through the Bukers Hotline asking what the difference is between these two forms.
The difference is important as it tells us about a person’s level of involvement in their farming business.
Form 4835
The Form 4835 is used by the landowner of a farm to report farming income in the following situation:
- a landowner of a farm leases their farm to a tenant,
- the landowner does not materially participate in the farming activity, and
- the landowner receives rental income from the tenant based on the production of crops or livestock.
Form 4835 is used when all three of the above conditions are met. Note, the term “material participation” is a tax term that describes whether a person actively works in the management or operation of a business. There are specific factors that test whether material participation is met.
Schedule F
The Schedule F is generally used to report farming income in all other circumstances. Any person who owns farming property and does not lease out the land will report the farming income on Schedule F. Additionally, any individual who materially participates in their farming activity will use Schedule F.
Note, in the situation where a landowner leases their farm to a tenant and receives a flat rental fee for the pasture or farmland, this income is not farming income. This income is rental income that the landowner will report on their Schedule E.
Cash Flow Implications
As you can see, your borrower’s income from a farm will be reported on either Schedule F or Form 4835. It’s imperative that you capture the farming income from either form for your cash flow analysis. Each form has a similar format, however there are specific line-item differences. The Bukers Taxanalysis software incorporates line-item references to both the Schedule F and the Form 4835, to provide you with a comprehensive tool to analyze any farming income from your borrower.
Note, if your borrower’s tax return includes both Schedule F and Form 4835, each form is reporting different sources of income and you’ll want to make sure you capture both income sources in your cash flow analysis.
Are you interested in seeing how the Bukers Taxanalysis software walks you through the analysis of the Schedule F and Form 4835? Schedule a demonstration today.