Are CFAP2 - CCC - COVID19 and CFAP3 - CAA - COVID19 agriculture program payments taxable or nontaxable? What qualifies for the cost-sharing exclusion?

[bevanfam2015]

I'm unsure if the COVID19 payments from the US Dept. of Ag are considered taxable or not.

[PattiF]

Yes, they are considered taxable income. 

The CFAP (Coronavirus Food Assistance Program) provides direct payments to producers of eligible agricultural commodities adversely affected by the coronavirus (COVID-19) pandemic to help offset sales losses and increased marketing costs associated with the COVID-19 pandemic. CFAP payments are agricultural program payments that you must include in gross income.

Report the full amount of your CFAP payments on Schedule F (Form 1040), lines 4a and 4b. See the Instructions for Schedule F (Form 1040). 

These payments do not qualify for the cost-sharing exclusion since they cover crops and livestock, not conservation programs.

Cost-Sharing Exclusion (Improvements)

You can exclude from your income part or all of a payment you receive under certain federal or state cost-sharing conservation, reclamation, and restoration programs. However, see Effects of the exclusion, later. A payment is any economic benefit you get as a result of an improvement. However, this exclusion applies only to that part of a payment that meets all three of the following tests.

1. It was for a capital expense. You can't exclude any part of a payment for an expense you can deduct in the year you pay or incur it. You must include the payment for a deductible expense in income, and you can take any offsetting deduction. See chapter 5 for information on deducting soil and water conservation expenses.

2. It doesn't substantially increase your annual income from the property for which it's made. An increase in annual income is substantial if it's more than the greater of the following amounts.

   1. 10% of the average annual income derived from the affected property before receiving the improvement.

   2. $2.50 times the number of affected acres.

3. The Secretary of Agriculture certified that the payment was primarily made for conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife.

Here is a link to Publication 225, Farmer's Tax Guide.