Tax Deductions for Farms That Are Cash Rented
- Depreciation is one of the largest tax deductions a landlord of a farm can claim. A barn used to house livestock can be depreciated over its useful life. Storage bins can be depreciated as well. A farm house can be depreciated if the farm house is rented to tenants. Even if there is no physical farming operation, depreciation can still be claimed for items that will eventually wear out such as fence around the property or drainage tile installed to reduce the pooling of water on the farm land. To determine the proper amount of depreciation, the owner will need to determine the cost of the asset being depreciated as well as a few items proscribed by the Internal Revenue Code, such as the estimated life of the asset and the appropriate depreciation method.
- Money spent for repairs on a farm may also result in tax deductions. Only certain repairs are deductible immediately. Money spent for major improvements will not be immediately deductible but will increase depreciation over a period of time. However, small repairs that are routine and necessary to maintain the farm will be deductible in the year incurred. For example, if an owner builds a new fence that is expected to last many years, the cost of the fence is not deductible but can be depreciated. On the other hand, if an owner pays $300 to have fence repaired, then cost of the repair should be deductible in the year incurred.
- Property taxes, insurance and interest paid by the owner of the farm may result in deductions for the owner. Property taxes paid by an owner of a farm to a county or state government are deductible. Insurance is deductible and may include liability insurance or insurance carried to protect the farm buildings or a farm house. Mortgage interest incurred by an owner to finance the farm or the buildings located on the farm is deductible for federal tax purposes. Interest on loans used to finance repairs or improvements for the farm may also be deductible.
- Owning and renting a farm may result in a variety of miscellaneous deductions. For example, the cost of traveling to and visiting a farm may be deductible if the primary purpose of the visit was related to the rental of the farm and was not for personal purposes such as seeing family and friends. Legal costs incurred in renting the farm may also be deductible, including the cost of drafting a lease or easement. Owners can deduct accounting and tax preparation fees incurred as a result of renting the farm.