Updated November 7, 2026. Quick answer: Before line 10 the Instructions set the ground rules for every farm expense: no personal or living expenses, repaid amounts reduce the deduction, certain costs must be capitalized unless you are a small business taxpayer, and under the cash method prepaid farm supplies above 50% of your other deductible farm expenses can be pushed to a later year.
What you cannot deduct
The form says it plainly: “Do not include personal or living expenses.” The Instructions list what stays out: “Personal or living expenses (such as taxes, insurance, or repairs on your home) that don’t produce farm income.” “The value of animals you raised that died.” “Inventory losses.” “Personal losses.” One more: “If you were repaid for any part of an expense during the same year, you must subtract the amount you were repaid from the deduction.”
Capitalizing costs and the small business taxpayer exception
A producer or reseller has to add certain costs to inventory or property, but small farms are exempt: “For tax years beginning after 2017, small business taxpayers, defined later, are not required to capitalize costs under section 263A.” The definition: “A small business taxpayer is one that has gross receipts of $31 million or less for the 3 prior tax years and is not a tax shelter, as defined in section 448(d)(3).” If you do capitalize: “If you capitalize your expenses, don’t reduce your deductions on lines 10 through 32e by the capitalized expenses.” The amount is entered in parentheses on line 32f with 263A beside it, covered on lines 32a to 32f.
Plants with a long preproductive period have an election: “If the preproductive period of any plant you produce is more than 2 years, you can elect to currently deduct the expenses rather than capitalize them.”
Prepaid farm supplies and the 50% limit
The cash-method limit: “In most cases, if you use the cash method of accounting and your prepaid farm supplies are more than 50% of your other deductible farm expenses, your deduction for those supplies may be limited.” Prepaid supplies are feed, seed, fertilizer and similar items not used up in the year. What is allowed: “If the limit applies, you can deduct prepaid farm supplies that don’t exceed 50% of your other deductible farm expenses in the year of payment.” The excess is deductible when used or consumed.
Illustration, not an IRS example. Every result is computed from invented inputs; the cap is the other expenses times 50% and the remainder is the prepaid amount minus the cap.
| Step | Amount |
|---|---|
| Other deductible farm expenses (invented input for the computed lines) | $80,000 |
| Prepaid farm supplies paid in 2025 (invented input for the computed lines) | $55,000 |
| 50% of the other expenses (computed) | $40,000 |
| Deductible in 2025 (computed) | $40,000 |
| Deductible in a later year when used or consumed (computed) | $15,000 |
Where the line-by-line rules continue
The line groups that follow this page: lines 10 to 15, lines 16 to 21b, lines 22 to 31 and lines 32a to 32f. Feed prepayments have an extra test on line 16.
Edition
This page reads Schedule F (Form 1040) for 2025 and the Instructions for Schedule F (Form 1040) (2025), the files irs.gov served on 2026-11-07. Line numbers belong to that edition, so check the label printed on the schedule in your own copy before you follow a line reference.
Common mistakes
- Deducting the farm’s share of household costs. The Instructions bar personal or living expenses that don’t produce farm income.
- Taking the full prepaid supplies deduction without checking the 50% test against your other deductible farm expenses.
- Reducing the line 10 to 32e totals by capitalized costs. Enter the capitalized total in parentheses on line 32f instead.
- Assuming the capitalization rules apply to every farm. Small business taxpayers under the $31 million receipts test are not required to capitalize.
Related: Schedule F overview, lines 16 to 21b, and Schedule C lines 20 to 22.
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Answer againSources
- Schedule F (Form 1040), Profit or Loss From Farming (2025): https://www.irs.gov/pub/irs-pdf/f1040sf.pdf
- Instructions for Schedule F (Form 1040) (2025): https://www.irs.gov/pub/irs-pdf/i1040sf.pdf
Read from the IRS documents linked above on November 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.