How to Handle the Property Taxes for a Farm Purchased as a Rental Property
Owners are responsible for paying tax assessed on the value of their property even when it's rented to someone else. An owner bears the risk of non-payment penalties that taxing authorities may impose. By renting farm property, an owner pays the property taxes from the rental income received. The property taxes are a deductible expense for income tax purposes. Handling the income tax deduction an owner is entitled to take for property taxes depends on the nature of the farm rental agreement.
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Instructions
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Using Form 4835
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1
Pay the tax property tax and keep a record of the payment along with a ledger of farm rental income received.
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2
Report the property tax expense on Line 27 of Form 4835 if you received rental income based on farm production by the tenant.
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3
Subtract all expenses, including property taxes, from the farm rent received. The net farm rental income after deduction of all expenses that's calculated on Form 4835 is recorded on Line 33 of personal income tax return Form 1040.
Using Schedule E
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4
Record farm rental income received on a ledger and keep a receipt of property tax paid.
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5
Report the property tax expense on Line 16 of Schedule E if you receive a flat fee for rental of farmland that's not based on farm production by the tenant.
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6
Complete Schedule E by reducing farm rent for all associated expenses, including property taxes. The net farm rental income calculated on Schedule E after deducting all expenses from rent received is recorded on Line 17 of personal income tax return Form 1040.
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