Line 24 - Rent or Lease

Farmers often rent land, machinery, or livestock from others as part of their overall business plan. Rent is a deductible expense reported on Lines 24a and 24b. If the annual rent totals $600 or more, the tenant must issue an IRS Form 1099-MISC for the rent paid to an unincorporated lessor (landlord). Farmers use Line 24a i to report vehicle, machinery and equipment rents and leases. They use Line 24b to report land or animal rents.

Example 1. Antonin farms 1,500 acres, 1,000 acres from three landlords, and 500 acres of owned property. Antonin pays an average of $235 per acre cash rent to his landlords. Using Schedule F, Line 24b, Antonin reports $235,000 in land rents. He issues three IRS Forms 1099-MISC to his landlords, one for $100,000, a second for $67,500 and a third for $67,500. IRS will match the rental 1099s with his return and those of his landlords.

Note: Antonin should also check boxes F and G, at the top of his Schedule F because he is required to issue Forms 1099.

Example 2. Izabella rents a backhoe to dig out a waterline across one of her fields. She rents from ABC Equipment, Inc. and pays them $75 per engine hour. Her employee, Roberto, operated the machine for 10 hours. Izabella pays ABC Equipment, Inc. $750. She reports this expense on Line 24a, Schedule F. Isabella does not need to issue a Form 1099-MISC because ABC Equipment, Inc. is incorporated.

Example 3. Grandpa Joe rents his farm and equipment to his granddaughter Emily. The land and the equipment are rented together as Emily is a beginning farmer and needs the equipment to operate. Emily pays Grandpa Joe $65,000 for the land and the equipment as a lump-sum rental payment. The rental arrangement is $40,000 for land rent and $25,000 for machinery and equipment rented with the land. Emily can report these two amounts on Lines 24a and 24b as illustrated below. However, she will issue one Form 1099-MISC for $65,000 to Grandpa Joe and tick questions F and G in the affirmative.

Example 4. Geraldo enters a three-year lease for a new tractor with PDQ Leasing Partnership. At the end of the lease term, Geraldo must return the tractor to the leasing company. The lease allows 500 hours of engine time per year (1,500 hours in total) at a cost of $50 per hour. If Geraldo uses the tractor more than the 1,500 hours, he pays $85 per hour for the overage. Geraldo is required to cover the tractor with insurance, but the maintenance and repair costs are covered by the leasing company. This year, Geraldo pays $25,000 to lease the tractor. He must issue a Form 1099-MISC to PDQ Leasing because it is a partnership and not a corporation. Geraldo uses Line 24a, Schedule F to report and deduct the rent paid.

Example 5. Bernadette enters a three-year lease for a combine. The lease agreement requires Bernadette to pay $175,000 each year and then provides the option purchase the combine for $15,000 at the end of the lease. Bernadette is required to insure, maintain, and repair the combine over the lease term. Because of the very low purchase price at the end of the lease, this lease appears to be a capital lease, which IRS will treat it as a purchase. In this case, the farmer may depreciate or expense the combine, but no rental expense is allowed.

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.