Rural Land Farm ID and Tax
Rural Land Farm ID and Tax
I was hoping someone could provide their experience or point me to some reading material on this topic.
Situation:
I have rural land, a little over 50 acres that I use predominantly as a weekend getaway and a hunting parcel, it’s mostly hardwood forest. I have considered having it logged for timber. Other than that I’ve never really considered using it for farming activities. I have purchased certain items to maintain the land, tractor, side by side ect.
Recently a friend mentioned I should get a farm ID and use it to tax deduct my expenses from the “farm” and depreciate the buildings on the property.
I’ve never considered putting animals on it like I envision a true farm due to the distance to my residence, however, when reading the tax code reference hobby farm vs business it does mention tree farms and other agriculture pursuits. I have considered managing it for hardwood, such as planting black walnut for a long term revenue or similar activities.
My question:
Would managing the parcel as a hardwood business where I wouldn’t turn a profit for a long time count as a “farm” where I could deduct expenses such as the tractor, ect. If anyone has any other ideas for low effort “farming” I’d also be interested.
Situation:
I have rural land, a little over 50 acres that I use predominantly as a weekend getaway and a hunting parcel, it’s mostly hardwood forest. I have considered having it logged for timber. Other than that I’ve never really considered using it for farming activities. I have purchased certain items to maintain the land, tractor, side by side ect.
Recently a friend mentioned I should get a farm ID and use it to tax deduct my expenses from the “farm” and depreciate the buildings on the property.
I’ve never considered putting animals on it like I envision a true farm due to the distance to my residence, however, when reading the tax code reference hobby farm vs business it does mention tree farms and other agriculture pursuits. I have considered managing it for hardwood, such as planting black walnut for a long term revenue or similar activities.
My question:
Would managing the parcel as a hardwood business where I wouldn’t turn a profit for a long time count as a “farm” where I could deduct expenses such as the tractor, ect. If anyone has any other ideas for low effort “farming” I’d also be interested.
Re: Rural Land Farm ID and Tax
If you've got a compatible climate you could grow Christmas Trees, probably an 8 - 12 year turnaround on a crop. If you've got enough rain maybe all you have to do is prune once a year.
The closest helping hand is at the end of your own arm.
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Re: Rural Land Farm ID and Tax
This topic is now in the Personal Finance forum (tax question).
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Re: Rural Land Farm ID and Tax
I believe you need to show that you are intending to make a profit. A hobby farm with a few horses won't work.
Re: Rural Land Farm ID and Tax
The USDA and your state extension service will have a lot of information to get you started. You want to make sure you do not inadvertently turn your timber sales from capital gains to ordinary income. You may need the services of a forester. I know some states have programs that will provide a fair amount of expert services to you for free.
Re: Rural Land Farm ID and Tax
Tracking on the hobby farm part for the tax code, I was hoping to overcome the hobby part through the trees. I hadn’t considered the Christmas tree farm part. They grow well here and I actually worked at one for two years in high school so I do have some knowledge regarding the up keep. That may be a reasonable approach. Something to think on for sure.
Does anyone have a link to resources detailing or speaking of general tax info for farms?
Thanks to all
Does anyone have a link to resources detailing or speaking of general tax info for farms?
Thanks to all
Re: Rural Land Farm ID and Tax
Katietsu- Yes, my state does offer free services or low fee and I have signed up. Just on the COVID wait list.
Re: Rural Land Farm ID and Tax
Well Schedule F instructions are always a good place to start.
https://www.irs.gov/pub/irs-pdf/i1040sf.pdf
Mike
https://www.irs.gov/pub/irs-pdf/i1040sf.pdf
Mike
Re: Rural Land Farm ID and Tax
I own a tree farm. Extension service for your county or state will have resources. Also treefarmsystem.org. I am not sure what was meant by "farm id" unless he meant create a corporation and file as a separate tax entity. You can still report income and deduct farm related expenses as an individual. Rules vary and are complicated. The year I inherited a farm is the last year I prepared my own taxes. I use a CPA.
The replanting costs were amortized. My trees are managed by a forester who created a tree management plan, solicited bids for sells and monitors for issues. At this stage that is driving through once or twice a year. He received a percentage of the tree sale costs similar to a realtor. I received a state grant toward replanting costs also.
My tree farm does not have buildings.
The largest tax benefit is property tax related. As a farm the county allows a percentage of the taxes to be deferred as long as land is used for farm activities. And if the land use is changed they only go back 3 years for taxes. My property tax bill for large acerage (100s) is less than $1000.
Uneven income is a tree farm challenge. Tax consequences are factored into sell terms. Tree farms are commonly paired with hunting leases, but I have only done that 1 year.
My kids have college degrees debt free because my father planted trees before they were born.
The replanting costs were amortized. My trees are managed by a forester who created a tree management plan, solicited bids for sells and monitors for issues. At this stage that is driving through once or twice a year. He received a percentage of the tree sale costs similar to a realtor. I received a state grant toward replanting costs also.
My tree farm does not have buildings.
The largest tax benefit is property tax related. As a farm the county allows a percentage of the taxes to be deferred as long as land is used for farm activities. And if the land use is changed they only go back 3 years for taxes. My property tax bill for large acerage (100s) is less than $1000.
Uneven income is a tree farm challenge. Tax consequences are factored into sell terms. Tree farms are commonly paired with hunting leases, but I have only done that 1 year.
My kids have college degrees debt free because my father planted trees before they were born.
Re: Rural Land Farm ID and Tax
Beachmom,
Thank you, that was very helpful.
Fabdog,
Appreciate the link, I’ll read through it.
Thank you, that was very helpful.
Fabdog,
Appreciate the link, I’ll read through it.