2018 Schedule F (Form 1040): Farm Profit or Loss Filing Checklist
2018 Form 1040SF Uniqueness
Schedule F for 2018 incorporates the provisions from the Tax Cuts and Jobs Act. The cash-method accounting threshold has been expanded to average gross receipts of $25 million or less. Farms under this threshold are no longer required to maintain inventory. The Section 179 maximum deduction is set at $1,000,000, with a $2,500,000 phaseout threshold. The recovery period for farm machinery has been shortened to 5 years; the 150-percent declining balance method is no longer mandatory for farming businesses.
Year-Specific Programs Applying to 2018 Schedule F
The Tax Cuts and Jobs Act (TCJA) increased eligibility for cash-method accounting to farms with average gross receipts not exceeding $25,000,000 over the prior three tax years. Small farms meeting this threshold are exempt from maintaining inventory under the 2018 rules. The Section 179 deduction maximum of $1,000,000 applies in 2018, with a dollar-for-dollar reduction beginning when total qualified property costs exceed $2,500,000.
2018 Schedule F: Ten-Step Filing Checklist
Step 1: Confirm Correct Form and Attachment
Verify Schedule F (Form 1040) must be attached to Form 1040, Form 1040NR (nonresidents), Form 1041 (estates/trusts), or Form 1065 (partnerships). Confirm the 2018 tax year. Do not file Schedule F independently; it is a supporting schedule only.
Step 2: Complete Information Block With 2018 Threshold Eligibility
Enter the proprietor's name and Social Security Number (SSN) or Employer Identification Number (EIN). Declare accounting method: Cash or Accrual. Under 2018 TCJA rules, if the average gross receipts for the prior three years do not exceed $25,000,000, the cash method is permitted regardless of inventory holdings.
Step 3: Enter Principal Agricultural Activity Code (Line B)
Select a six-digit NAICS code from Part IV identifying primary farm activity. Crop production codes include Oilseed and grain farming (111110 Soybean or 111120 Oilseed except Soybean), Vegetable and melon farming (111210 Potato or 111219 Other Vegetable), Fruit and tree nut farming (111310 Orange Groves or 111331 Apple Orchards), Greenhouse/nursery production (111411 Mushroom or 111421 Nursery and Tree Production), Beef cattle ranching (112111), Dairy cattle production (112210), Hog farming (112300), Poultry production (112400), Sheep and goat farming (112510), Aquaculture (112900), and Forestry and logging (113000). Note: Use the specific six-digit codes shown; group codes, such as 111100, 111300, 111400, and 111900, do not exist as standalone classification codes.
Step 4: Answer Material Participation Question (Line E) and Form 1099 Compliance (Lines F–G)
Answer YES or NO to whether the proprietor “materially participated” in the farm operation during 2018. If not, passive activity loss limits apply, as per Publication 925. Disclose on line F whether payments requiring Form 1099 were made; answer on line G whether the necessary Form 1099 was or will be filed.
Step 5: Report Farm Income Using Correct Method (Part I Cash / Part III Accrual)
If the cash method is used, complete Part I (lines 1–9). Report line 1a–c (livestock and resale items with cost basis), line 2 (sales of raised products), line 3a–b (cooperative distributions Form 1099-PATR), line 4a–b (agricultural program payments), line 5a–c (CCC loans under election), line 6a–d (crop insurance and disaster payments with deferral election option if applicable), and line 8 (other income including fuel tax credit/refund).
Note: Line 7 is blank on the form. Line 9 is Gross income. Custom hire income does not appear as a separate line item on the income section; custom hire machine work is reported as an expense on line 13. If the accrual method: Complete Part III (lines 37–50), reporting the same income types.
Step 6: Elect Crop Insurance Deferral If Eligible (Line 6c)
If using cash-method accounting and farm business practice dictates selling more than 50 percent of crop production in the year following harvest, the farmer may defer 2018 crop insurance proceeds and federal disaster payments to 2019. Report the amount received on line 6a, leave line 6b blank, check the box on line 6c, and attach a detailed deferral election statement showing (1) farm business practice history and (2) calculation of deferral amount.
Step 7: Calculate Gross Farm Income (Line 9)
Add for cash method: lines 1c + 2 + 3b + 4b + 5a + 5c + 6b + 6d + 8. For the accrual method: Enter the amount from Part III, line 50. This gross income total determines whether the 2/3 gross income test applies for filing-date relief eligibility (if 2/3 or more of total gross income is farm income, the filing date is March 1).
Step 8: Complete Farm Expenses (Part II, Lines 10–32f) and Verify No Personal Living Expenses.
Report ordinary and necessary business expenses only. Line 10: car and truck expenses (or standard mileage rate for 2018; attach Form 4562, Part V for vehicle information). Lines 11–32: report chemicals, conservation expenses, custom hire, depreciation/Section 179, employee benefits, feed, fertilizers, freight/trucking, gasoline/fuel/oil, insurance, interest on business property, and labor hired minus any employment credits. DO NOT include personal living expenses, expenses for items raised for family use, the value of animals that died, or inventory losses.
Step 9: Report Depreciation and Section 179 on Line 14 (Attach Form 4562)
Claim the depreciation deduction on line 14 using Form 4562. For 2018, the Section 179 expense deduction is a maximum of $1,000,000, reduced dollar-for-dollar when total Section 179 property placed in service exceeds $2,500,000. Farm machinery and equipment qualify for a 5-year MACRS recovery period instead of the prior 7-year treatment. Farming businesses are no longer required to use the 150-percent declining balance method; they may use the straight-line or 200-percent declining balance method. Attach the completed Form 4562 to the tax return.
Step 10: Calculate Net Farm Profit/Loss (Lines 33–36) and Assess At-Risk Limitations
Line 33: Add total expenses (lines 10–32f). Line 34: Subtract line 33 from line 9 to calculate net farm profit or loss. If there is a profit, report it on the appropriate form line and proceed accordingly. If loss: Complete lines 35–36. Line 36: Check box (a) if all investments are at risk (all loans are recourse loans), or box (b) if some investments are not at risk (nonrecourse loans or stop-loss agreements present). If (b) is checked, the farm business may require Form 6198 (At-Risk Limitations) and must comply with Publication 925 passive activity loss rules.
2018 Schedule F Line Redesigns and Updates
Line 14 (Depreciation & Section 179): Farming businesses are no longer required to use a 150-percent declining balance; they may elect straight-line or 200-percent declining balance. Specific farm machinery qualifies for a 5-year recovery period instead of a 7-year treatment—section 179 maximum: $1,000,000 with a $2,500,000 phaseout threshold. Before 2018, farming businesses were required to use the 150-percent declining balance method for properties with terms of 3, 5, 7, and 10 years.
Form-Specific Limitations and Restrictions for 2018
Nonresident Alien Restriction: Nonresident aliens must file Form 1040NR (not Form 1040) to attach Schedule F. Certain credits available to U.S. residents may not apply. Determine resident versus nonresident status according to the substantial presence test or the green card test.
Passive Activity Loss Limitation: If the proprietor answers NO to material participation (line E), net farm loss is limited under IRC Section 469 passive activity rules. Losses cannot offset non-passive income; disallowed losses carry forward indefinitely. Exception: Up to a $25,000 special allowance is available if actively participating in passive rental real estate activity, subject to phase-out based on modified adjusted gross income.
Inventory Requirement Exemption (2018 TCJA Rule): Farms with average gross receipts not exceeding $25,000,000 for the prior three tax years are not required to maintain inventory. Farms exceeding the $25,000,000 threshold must use the accrual method and maintain a detailed inventory (Part III, lines 45–49).
Section 179 Deduction Phaseout (2018 Threshold): Maximum Section 179 deduction for 2018: $1,000,000. The phaseout begins when the total cost of Section 179 property placed in service during 2018 exceeds $2,500,000. Each dollar above $2,500,000 reduces the deduction by one dollar.
Labor Hired Must Be Net of Employment Credits: Line 22 requires reporting labor hired net of the following employment credits if claimed: Work Opportunity Credit (Form 5884), Empowerment Zone Employer Credit (Form 8844), Indian Employment Credit (Form 8845), Credit for Employer Differential Wage Payments (Form 8932), and Employer Credit for Paid Family and Medical Leave (Form 8994).
Form 1099 Reporting Compliance: If the proprietor made payments in 2018 requiring Form 1099 filing (line F: YES), the proprietor or preparer must file the required Forms 1099 (line G: confirm YES or indicate filing status). Failure to file Form 1099-MISC for vendors/contractors paid $600 or more, or Form 1099-NEC for nonemployee compensation, may result in penalties.
Material Participation Requirement: If the proprietor did not materially participate in the farming operation (line E: NO), farm activity is classified as passive activity under IRC Section 469. Passive activity losses are subject to limitation rules; Publication 925 governs deductibility.
At-Risk Limitations (Line 36 Election): If the farm has nonrecourse debt or stop-loss agreements (line 36b: checked), losses are subject to Form 6198 at-risk limitation rules. Deductible loss cannot exceed the amount at risk in the activity.
Supporting Documents Required for 2018 Schedule F
Gather before filing: (1) Farm income records (sales receipts, cooperative statements, insurance claim documentation); (2) Form 1099-MISC for payments to contractors/professionals of $600 or more; (3) Form 1099-G for federal and state agricultural program payments; (4) Form 1099-PATR for cooperative distributions; (5) Depreciation schedule and asset acquisition/disposal records; (6) Form 4562 (Depreciation and Amortization) if claiming depreciation or Section 179; (7) Form 6198 (At-Risk Limitations) if applicable; (8) Crop insurance deferral election statement (if applicable); (9) Employee wage records and Forms W-2; (10) Profit/loss statement and farm financial records.
Required Schedule Attachments
Form 4562 (Depreciation and Amortization): Required if claiming depreciation deduction or Section 179 expense deduction on line 14.
Form 6198 (At-Risk Limitations): Required if the farm has borrowed amounts not at risk or if net loss exceeds the at-risk basis.
Crop Insurance Deferral Statement: Required if electing IRC Section 451(f) deferral on line 6c.
Form 4797 (Sales of Business Property): File separately if reporting the sale of livestock held for draft, breeding, sport, or dairy purposes (do not report on Schedule F).
Filing Instructions: Paper Return Assembly and Mailing
Schedule F must be attached to the appropriate return form: Form 1040, Form 1040NR, Form 1041, or Form 1065. Sign and date Schedule F on the same date as the principal return. Order: principal form, then Schedule F, then Form 4562, then Form 6198 (if applicable), then deferral election statement (if applicable).
See the IRS "Where to File" page for the 2018 Schedule F mailing address, based on the taxpayer's state and whether payment is enclosed.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
