We rent land to a farmer and receive a 1099 yearly.

[VTCheryl]

In 2021 we had to put in a waterway trench to prevent erosion.  We were reimbursed by the conservation district for our costs.  we received a 1099 NEC for that.  I am trying to figure out where to put that 1099 and where I can deduct the expenses to offset that.  We do not file a  schedule f because we rent that land.    I am stumped on this one

[LeonardS]

When you put in a waterway trench to prevent erosion the cost of the trench was added to your basis in the land and was not a deductible expense.

The 1099-NEC from the conservation district reimbursed you for your expense of the trench and will be reported as income not subject to self-employment tax. 

To enter your conservation district reimbursement sign in to your TurboTax account if it is not open and follow these steps:

1. Select Income & Expenses.
2. Scroll down to Less common income and select show more.
3. Scroll to the line Miscellaneous Income, 1099-A, 1099-C, and check start.
4. On the page Let's Work on Any Miscellaneous Income scroll to the line Other reportable income and click start.
5. On the page Any Other Taxable Income select yes.
6. On the page, Other Taxable Income enter a description and amount.
7. Select continue.
8. Select done on the next page

[VTCheryl]

So are you saying I cannot offset the income with the expense to make the repairs to the field?  There would be a little bit net left because we did a little of the work ourselves but most of it we paid a contractor to complete.  

[DianeW777]

Generally, the information provided by @Leonard_Smith is correct.  Land is an appreciable asset and is not eligible for a depreciation deduction. And then you must consider whether you are in business or if this was a one time action on your part so that you could rent the land. Based on your comments it appears you are not in business.

The form you received indicates that it was for your services and not for the land rent. If you are not in business, then there is no requirement to pay self-employment tax on it which is a break for you.

You should in turn issue a Form 1099-NEC for the money you paid the contractor, only if it is not a corporation.  For example, if it was an individual business as a sole proprietor.  You can access this through TurboTax CD/Download Home & Business if you need it.

• How to create 1099s for contractors (follow the instructions so there is no additional fee)
• Hobby or Business Guidance
• Am I considered self-employed?

[VTCheryl]

So to add more clarity-We lease land to a farmer who sends us a 1099 MISC for the rent he pays us.  One of the fields that the farmer plants crops in started washing out because a neighboring property was deforested.....the diversion trench that we had in the field was not longer working and we had to put in an additional one to stop the water from eroding the field.    If we would not have done this the farmer would loose valuable acreage when planting his crops.  We hired an excavator to do the work as well as purchased seed, stone and straw.  We were reimbursed by the county conservation for these costs.  The county sent us a 1099 NEC for the reimbursement.    

[JohnB5677]

It looks like you are using the Home & Business software.

Do you post the 1099-MISC from the farmer in a business entity?

If you do, simply include the 1099-NEC income and the related expenses in that Schedule C.

[VTCheryl]

I am using home and business, as my husband is self employed.   (not in farming)  Are you saying just include that income on his schedule c along with the related expenses?   

[JohnB5677]

No, Where are you posting the "rent" that you are getting from the farmer?  Is it on a Schedule C (Business), Schedule E (Rental Property), or just as miscellaneous income?

There was no problem posting the rent as Miscellaneous income as long as you didn't have any expense.  Now, you should probably include the rent, reimbursement and expenses on a schedule E.

[VTCheryl]

FOr years using Turbo tax when I enter the farm rent from the 1099misc it puts it on form 4835 Farm Rental Income and Expenses and then that goes to  line 40 Schedule e page 2  Net farm rental income or loss from Form 4835.  It looks like I should be able to use form 4835 somehow.    I am wondering if it should be added to line 6 with the rental income and then take the deductions for the expenses somewhere on that form??

[LeonardS]

The improvement to your land is not linked to your rental activities for tax reporting purposes at this time. 

You paid to have the land improved, this is a capital expense that is added to the basis of your land. The expense is not deducted on your tax return.  

Looking from a different perspective if you received funds from the county conservation district this is income to you.  You took the income and spent that to improve the land.  The basis of your land is now increased by the value of the work performed.  The funds you received and spent increased the basis in your property.  The increased basis will be used when you sell the property to calculate any gain or loss on the sale. 

Also, you can not deduct as an expense any value for your time spent on improving the land.

@VTCheryl

[VTCheryl]

so what determines if it is an improvement or a repair to maintain the field 

[LeonardS]

Generally, a capital improvement is a durable lasting upgrade, adaptation, or enhancement of the property which significantly increases the value of the property and often involves structural work or restoration. A repair on the other hand includes both routine and preventative maintenance,