What Schedule F Actually Is
Schedule F — officially "Profit or Loss From Farming" — is the IRS form attached to your personal tax return (Form 1040) where you report your farm's income and expenses. It's the primary document your lender looks at when evaluating your operation, and the net number at the bottom (Line 34) flows directly into your taxable income.
Understanding every line isn't just a tax exercise. It's how you know whether you're capturing every legitimate deduction, whether your bookkeeping is set up correctly, and whether the picture your return paints matches the actual financial reality of your operation.
Most small farms file Schedule F on the cash basis — you report income when you receive it and expenses when you pay them, not when they're earned or incurred. This guide assumes cash basis. Accrual-basis farms use additional schedules. If you're unsure which you're on, check with your CPA.
Income Lines (Part I, Lines 1–9)
Before I get to deductions, the income lines matter because they set your gross farm income — the denominator when calculating profit margins and the baseline lenders use for DSCR analysis.
- Line 1a/b — Sales of livestock, produce, grains, and other products. This is your main revenue line. Report gross sales — before your cost of goods sold. Do not net this number.
- Line 2 — Cost or basis of livestock and other items reported on Line 1a. Your cost basis for items sold. The net of Lines 1 and 2 is your actual sales profit.
- Line 3 — Cooperative distributions. Patronage dividends and per-unit retain allocations from co-ops go here.
- Line 4 — Agricultural program payments. FSA program payments — ARC, PLC, conservation payments, WHIP+, ERP.
- Line 5 — Commodity Credit Corporation (CCC) loans. CCC loan proceeds you've elected to treat as income.
- Line 6 — Crop insurance proceeds and disaster payments. Proceeds from crop insurance indemnities and USDA disaster payments.
- Line 7 — Custom hire income. Income you received for doing custom work with your equipment on someone else's operation.
- Line 8 — Other income. Ag-related income not captured elsewhere — grazing lease income (if farming related), hedging gains, etc.
The 25 Expense Deduction Lines (Part II)
These are your deductible farming expenses. Each has a specific scope — what the IRS considers "ordinary and necessary" for that line. Read each one carefully. Misclassifying between lines isn't a tax problem by itself, but it can trigger questions and makes your benchmarking meaningless.
Vehicle expenses used for farming business. You can deduct actual expenses (fuel, oil, repairs, insurance, depreciation) or use the IRS standard mileage rate — but not both on the same vehicle in the same year. Vehicles used partly for personal use require you to track and deduct only the business-use percentage.
- Pickups, farm trucks, ATVs used for farm work qualify
- Keep a mileage log — it's your best protection under audit
- If you also claim depreciation on the same vehicle under Line 16, use actual expenses (not mileage rate)
Pesticides, herbicides, fumigants, and other chemicals used in production. This is a direct production input — don't mix it with fertilizers (Line 19) or supplies (Line 31).
- Herbicides, insecticides, fungicides
- Fumigation services for grain storage
- Post-harvest chemical treatments
Soil and water conservation expenditures — leveling, grading, terracing, drainage, irrigation. These are normally capital expenses (meaning you'd have to depreciate them), but farmers can elect under IRS Section 175 to deduct them currently — up to 25% of gross income from farming.
- Earthwork, terracing, land leveling
- Drainage tile installation
- Water well or irrigation construction
Amounts paid to others for custom machine work on your farm — planting, harvesting, spraying, trucking. This is the flip side of Line 7 (custom hire income you received).
- Custom harvesting
- Contract spraying or application services
- Custom planting or tillage
Depreciation of farm equipment, buildings, drainage tile, vehicles, and other long-term assets. The most powerful line on Schedule F and the one most farmers underutilize.
- Section 179: Deduct the full cost of qualifying equipment in the year you put it in service (up to annual IRS limits)
- Bonus depreciation: Additional first-year depreciation on new and used qualifying property
- MACRS: Standard multi-year depreciation schedule for assets not expensed under 179 or bonus
Watch Out Land never depreciates. Only improvements to land (drainage, fencing, irrigation systems) may qualify.
Cost of benefit programs you provide to employees other than yourself — health insurance, group-term life insurance, education assistance. Does not include wages (Line 25) or retirement contributions (Line 26).
Feed purchased for livestock — grain, hay, silage, supplements, premixes. This is typically one of the largest expense lines for livestock operations.
- Purchased hay, grain, silage
- Protein and mineral supplements
- Creep feed, calf starter
Fertilizer, lime, gypsum, and soil amendments applied to farm land. Generally deducted in the year paid (cash basis), even if the crops won't be sold until the following year — with an important exception.
- Anhydrous ammonia, urea, potash, phosphate
- Agricultural lime and dolomite
- Liquid fertilizer applications
Cost of hauling livestock, grain, and other farm products to market. Trucking you hire out — not your own truck (which goes on Line 12 or Line 16).
- Livestock hauling to sale barn or packer
- Grain trucking to elevator
- Delivery charges on farm inputs
Fuel and lubricants for farm equipment and machinery — tractors, combines, irrigation pumps. Does not include fuel for your personal vehicle or vehicles tracked on Line 12 under actual expenses.
- Diesel for tractors, combines, skid steers
- Fuel for irrigation engines
- Motor oil, hydraulic fluid, greases
Premiums for farm business insurance — not your personal health insurance (that's an adjustment on Form 1040).
- Multi-peril crop insurance (MPCI)
- Farm liability insurance
- Property and casualty insurance on farm buildings and equipment
- Livestock mortality insurance
Mortgage interest paid to financial institutions on farm real estate — Farm Credit, commercial banks, USDA FSA direct loans. You'll receive a Form 1098 for this.
Watch Out Interest on personal residence mortgage does not go here — it goes on Schedule A as an itemized deduction.Interest paid on farm operating lines of credit, equipment loans, and other non-real-estate farm debt. Line of credit interest, chattel mortgage interest on equipment, operating loan interest.
Wages paid to farm employees — does not include your own wages, your spouse's wages (unless treated as an employee), or amounts paid to family members who are farm partners.
- Seasonal harvest labor
- Full-time and part-time employees
- H-2A agricultural workers
Employer contributions to qualified retirement plans for your employees — SEP-IRA, SIMPLE IRA, 401(k). Your own retirement contributions as a self-employed farmer are handled separately on Schedule 1 of Form 1040.
Lease payments on farm vehicles, tractors, combines, and equipment. If you're leasing rather than buying, this line captures those costs. Distinguishing a lease from a conditional sales agreement (which is treated as a purchase) can matter for tax purposes.
Cash rent paid for land you're farming, pasture lease payments, and lease of livestock (e.g., custom grazing agreements where you lease the cattle). For many grain and livestock operations, this is one of the top three expense lines.
- Cash rent for cropland
- Pasture lease payments
- Lease of irrigation systems or grain bins
Cost of maintaining and repairing farm buildings, equipment, fences, irrigation systems, and other assets. This is one of the most commonly misunderstood lines — repairs are deductible, but improvements that extend useful life or add value must be capitalized and depreciated.
- Equipment repair parts and labor
- Fence repair (not new fence construction)
- Building maintenance and minor repairs
- Tire replacement on equipment
Cost of seeds and plants purchased for planting. Also includes seed treatment costs (seed inoculants, fungicide treatments applied at planting).
- Corn, soybean, wheat, alfalfa, and vegetable seed
- Seed inoculants and treatments
- Transplants for specialty crops
Cost of storing grain and other farm products at commercial facilities — elevator storage fees, warehouse charges.
- Commercial elevator storage fees
- Grain drying charges
- Warehouse fees for produce or specialty crops
A catch-all for consumable supplies used in farm operations that don't fit neatly in other categories. Baling twine, ear tags, syringes, fencing staples, spray nozzles, small tools under the IRS de minimis threshold.
- Livestock management supplies (ear tags, bands, needles)
- Baling twine and net wrap
- Small tools and equipment under $2,500
- Record-keeping and office supplies used for the farm
Real estate taxes on farm land, personal property taxes on farm equipment and livestock, and state and local taxes directly related to farm income. Federal income tax and self-employment tax are not deductible here.
- Real property taxes on farmland and buildings
- Personal property taxes on farm equipment
- Payroll taxes you pay as employer (FICA matching)
Utility costs for the farm operation — electricity for grain drying, pumping, lighting farm buildings, propane for heating livestock facilities, water for irrigation or livestock.
- Electricity for grain drying and farm buildings
- Propane or natural gas for livestock housing
- Rural water or well pump electric
Veterinary fees, breeding expenses, and medications for livestock. This is typically one of the top expense lines for cow-calf, dairy, and hog operations.
- Vet exam fees and procedures
- Prescription and OTC livestock medications and vaccines
- Artificial insemination supplies and semen costs
- Pregnancy checking services
- Feedlot processing costs (if not captured elsewhere)
Ordinary and necessary farm business expenses not fitting any specific line above. The IRS expects you to list these individually in Part II. Common items:
- Marketing and advertising (commodity marketing fees, market reports)
- Professional fees (accountant, attorney, farm consultant)
- Farm association dues and subscriptions
- Bank service charges on farm accounts
- Crop scouting services
- Farm software and recordkeeping subscriptions
- Check-off fees and commodity assessments
- Cell phone (business-use portion)
Most Commonly Missed Deductions
In reviewing farm tax returns, these are the deductions most consistently left on the table:
- Fuel tax refund (Form 4136). You pay federal excise tax on on-road fuel. Farm equipment that operates off-road qualifies for a refund of that tax. It's a credit, not a deduction, and it's separate from Schedule F — but most farmers either don't know it exists or don't claim it.
- Home office deduction. If you have a dedicated space in your home used regularly and exclusively for farm business (recordkeeping, farm management), you may qualify. Calculate it using the simplified method ($5/square foot, up to 300 sq ft) or actual costs.
- Vehicle mileage for market trips, ag meetings, and supply runs. Every trip to the elevator, co-op, sale barn, or FSA office is deductible. Most farmers don't keep a mileage log and lose these deductions entirely.
- Professional subscriptions and education. Crop scouting reports, market advisory services, ag conferences, farm management courses — all deductible as business education if related to your current farming operation.
- Conservation program cost-share payments that offset expenses. If you received a conservation cost-share payment and paid expenses with it, you may be able to exclude some or all of the payment from income while still deducting the expense. This interplay gets complicated — talk to your CPA.
- Interest on operating lines of credit. Many farmers pay off their operating line and forget to capture the year's interest payments on Line 23b.
- Employer half of self-employment tax. Not a Schedule F deduction — it goes on Schedule 1. But it's deductible and frequently missed by farmers who do their own returns.
What You Cannot Deduct on Schedule F
Personal expenses — even on a farm — are never deductible. Meals (unless traveling away from home for business), personal clothing, personal vehicle use, home improvements, and personal entertainment do not belong on Schedule F. Neither does federal income tax, estate tax, or self-employment tax. Land is not depreciable. And losses from a farm that the IRS determines is a hobby (not operated for profit) are not deductible at all.
Next Steps
Running through Schedule F line by line is useful. Running through it with your actual numbers plugged in is transformative. The free Schedule F Decoder on this site does exactly that — enter your line items, and get a plain-English analysis of your farm's financial picture with benchmarks for your operation type.
Run Your Schedule F Through the Decoder
Enter your income and expense lines. Get a clear breakdown of where your margin goes, which lines are out of range, and where you might be leaving money on the table.
Open Schedule F Decoder — Free Profitability Workbook →