Farm land rental income and expense questions

[DMM9]

My wife and I have 10.33 acres.  We rent 7 acres to a farmer and receive a cash payment per acre paid at the end of the year.  Our home is on the other 3.33 acres.  Can we claim expenses for a portion of the property taxes we pay and a portion of the insurance(liability) we pay.  How would we calculate the amount of property tax we can claim as an expense?  The land is worth $70000 and the total value of the home and land is $400000.  If the property taxes are $10000, can I claim 70000/400000=0.175 of the $10000 or $1,750?  Would I put this expense on form 4835?  Thank you for your help.

[PatriciaV · Accepted solution]

Yes, you can report the property taxes and insurance as a rental expense for the land that is rented, reported on Form 4835. Because your property appraisal includes both the home and the land, you would need to use only the value of the land to calculate the percentage.

Here's an example:

1. Total Appraisal: $100,000
2. $80,000 for home & improvements
3. $20,000 for land (12 acres)
4. Farm rental: 3 acres
5. Rental percentage: 3/12 = 25%
6. Value of rented land = $20,000 x 25% = $5,000
7. Percentage of farm rental in total appraisal = $5,000 / $100,000 = 5%

Because property tax bills and insurance are typically not split between residence and land, 5% of those expenses would apply to the farm rental. (If they are reported separately, 25% would be for the land rental.)