It depends. If you rent out farmland on a cash-rent lease, based on the amount of acreage, then the rent you receive is rental income and should be reported on Form Schedule E of Form 1040. If you rent out your farmland on a crop-share lease, whereby you rent out the land in exchange for a share of the crops or livestock, then it depends on how much you work on that farmland. If you materially participate, meaning you have a significant and continual role in the farming of that land, then you would report it as self-employment income on Schedule F of Form 1040. If you do not materially participate in the farming of that property, then the rent is reported on Form 4835-Farm Rental Income and Expenses, and it is not self-employment income.
According to Iowa State's Center for Agricultural Law and Taxation:
A landlord materially participates in a lease if (A) the landlord has an arrangement with the tenant requiring the landlord to materially participate in the production or the management of the production of the commodities AND (B) the landlord meets one or more of the following four tests[6]:
Test 1. The landlord does at least three of the following.
- a. Pays, using cash or credit, at least half the direct costs of producing the crop.
- b. Furnishes at least half the tools and equipment used in the production activities.
- c. Advises or consults with the tenant.
- d. Inspects the production activities periodically.
Test 2. Regularly and frequently makes, or takes an important part in making, management decisions substantially contributing to or affecting the success of the enterprise.
Test 3. Works 100 hours or more spread over a period of 5 weeks or more in activities connected with agricultural production.
Test 4. Does things that, considered in their totality, show that the landlord is materially and significantly involved in the production of the farm commodities.
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