@sem10624
Not-for-Profit Farming
If you operate a farm for profit, you can deduct all the ordinary and necessary expenses of carrying on the business of farming on Schedule F. However, if you don't carry on your farming activity, or other activity you engage or invest in, to make a profit, you report the income from the activity on Schedule 1 (Form 1040), line 8i. You can no longer deduct expenses of carrying on the activity, even if you itemize your deductions on Schedule A (Form 1040).
Expenses for activities you do as a hobby, or mainly for sport or recreation can not be deducted.
In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. No one factor alone is decisive. Among the factors to consider are whether:
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You operate your farm in a businesslike manner;
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The time and effort you spend on farming indicate you intend to make it profitable;
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You depend on income from farming for your livelihood;
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Your losses are due to circumstances beyond your control or are normal in the start-up phase of farming;
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You change your methods of operation in an attempt to improve profitability;
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You, or your advisors, have the knowledge needed to carry on the farming activity as a successful business;
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You were successful in making a profit in similar activities in the past;
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You make a profit from farming in some years and the amount of profit you make; and
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You can expect to make a future profit from the appreciation of the assets used in the farming activity.
Presumption of profit.
Your farming or other activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. The activity must be substantially the same for each year within this period. You have a profit when the gross income from an activity is more than the deductions for it.
If you fail the 3- (or 2-) years-of-profit test, you may still be considered to operate your farm for profit by considering the factors listed earlier.
