Farm Income - something doesn't seem right

[jasdlm]

Client owns farm ground (and bought more in 2007) that is part of a family farm. Previous preparer did as follows:

Pasture rent recorded on schedule E. Type of property - Farmland

Approximately $3000 in Farm expenses on Schedule F. Only Farm income, $120 patronage dividend.

New twist: For 2007, client has in addition to approximately $3,000 in 'farm expenses', a 1098 from Far Credit for $10,500 worth of interest on the additional land he bought.

I can't get my head around taking almost $14,000 in deductions against $120 patronage dividend. Obviously, it would help my client, but it doesn't seem right. I'm at a loss with regard to what to do.

Also, is it accurate to report the pasture rent on schedule E?

Thanks for any guidance. I don't have many farm returns, and certainly none like this.

[kcjenkins]

Pasture rent that is a cash rent can be re\ported on the E. If he participates in any material way, such as mowing, for example, it should be shown on the F. The issue of the big losses is a 'maybe' thing. While it is certainly possible to have big losses int he early years of building up a farm, as you are spending money, building a herd, for one example, and paying interest on the loan to buy the place, with little or no income, it all depends on the facts in each case.

If it's just an investment in raw land, and he is doing no actual farming, not even raising and selling hay, then it is not a 'farming activity'. But it is certainly possible to have a lot of expenses in the early days, with very little income. Talk to the client about what he is doing, what his plans are for the land, how he expects to make money off it, etc. Then you will have a better idea of what the situation is. Then come back with more info, if you want our opinion when we have enough facts to advise you

[LindaB]

Client owns farm ground (and bought more in 2007) that is part of a family farm. Previous preparer did as follows:

Pasture rent recorded on schedule E. Type of property - Farmland

Approximately $3000 in Farm expenses on Schedule F. Only Farm income, $120 patronage dividend.

You didn't say what the $3000 of expenses are--could they be related to the pasture rent on the sch. E instead of the patronage dividend on sch. F? Another possibility is that form 4835 should be used instead of one of these schedules. KC is right that you need to find out how the client is involved with the farm and what his plans are for the new property.