Farmers often purchase property insurance, crop insurance, and liability insurance to mitigate risk. They report and deduct the expense for these types of insurance policies on Line 20, Schedule F.
Note: Farmers report health insurance purchased on behalf of employees on Line 15, Schedule F. Health insurance purchased for the farmer and the family is not reported on Schedule F, but it may be deductible on Form 1040 as a self-employed health insurance deduction if the farmer otherwise qualifies.
Example 1. Leroy purchases an annual personal property and liability insurance policy in July. It covered the 12 months from July 1, 2021, to June 30, 2022. Leroy paid his independent insurance agency $5,500 for the cost of the policy. This insurance policy covers his machinery and equipment and provides liability protection should there be an injury on the farm. Leroy uses Line 20, Schedule F to report and deduct this expense.
Note: Insurance expense that does not extend beyond 12 months may be deducted in the year the premium is paid, even though the coverage extends into the following tax year.
Example 2. Matilda manages a crop farm. Each year she purchases multi-peril crop insurance to cover losses due to crop damage. Additionally, she purchases hail insurance for her wheat and barley crops under a separate policy. This year Matilda paid $7,500 for her crop insurance policies. She uses Line 20, Schedule F, to report and deduct her insurance expense.
Example 3. Jose operates a cattle ranch. He insures his equipment, machinery, cattle, and buildings against loss. He also secures an overall liability policy for his ranch. Jose negotiates a three-year contract with a one-time payment to obtain a 20 percent discount as compared to an annual policy. Jose pays $27,000 for the three years of coverage on July 1, 2021. Because Jose’s insurance covers more than one year, he can only deduct the cost of the insurance paid to cover the 2021 tax year or $4,500 [$750 x 6]. In the subsequent two years, Jose will deduct $9,000 each year; and in the fourth tax year, Jose can deduct the remaining and final $4,500 on Line 20.
The Center for Agricultural Law and Taxation is a partner of the National Agricultural Law Center (NALC) at the University of Arkansas System Division of Agriculture, which serves as the nation’s leading source of agricultural and food law research and information. This material is provided as part of that partnership and is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.