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Form 4835 online LA: What You Should Know

Why Do I Have to Report Farm Rentals? There are many reasons why the IRS requires you to report your farm rental income and expenses.  First, your taxable income may be derived from a business that is not a qualified business (TIC) and which fails to have a valid federal income tax exemption in effect. For example, your gross rental income and expenses may not exceed 35% of your gross income. If you have not properly entered information in your Federal income tax returns, you will not be able to file Form 1040 and pay the fair market value for all the taxable income derived from your business. Instead, you may consider yourself a resident of a state or another nation not covered by the Federal income tax return. You may elect to pay state or local taxes instead of federal taxes on income derived from the business. Second, if you use a mortgage or loan interest while renting out a home, the income from the property is subject to taxes paid by your tenants. Third, if you are engaged in a farming business, you are not eligible to receive business tax benefits related to qualified property. And, you may not deduct income or loss of the business from your Federal income tax return and report your income on Form 1040. Other Reasons to Report Farm Rental Income and Expenses The following are other reasons that you should report farm rental income and expenses: You do not have to report all of your income because other forms of income may be reported on separate Form 990 and Forms 1040. Business and property income are not deductible on a taxpayer's federal income tax return. You can have a farm business as an active income earner and qualify to receive a reduced rate of income tax. See Special-Risk Income and Loss Rules for Nonfarm Business. Your rental income can be used to pay interest or dividends on your farm bank accounts. The IRS issues an audit warning when your reporting has not been correct on Form 990. You may want to file a Federal return and use Schedule A (Form 1040) to file your rental properties because you have a tax exemption for the entire year (i.e., Form 990) but do not qualify for an exception for farm operating expenses and income from other sources. It is very important that you correctly report, pay, and file Schedule A (Form 1040) on or before Form 3115 if you qualify for the “special benefit” and use Form 3115 to deduct an exemption for the year.

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