Updated November 7, 2026. Quick answer: Part III is for accrual-method farms. Lines 37 to 44 total the income, lines 45 to 49 net out inventory (beginning plus purchases minus ending), and line 50 is gross income, which is copied to Part I line 9. A footnote reverses the arithmetic for farms that value inventory by the unit-livestock-price or farm-price method when ending inventory is larger.
Who uses Part III
The Instructions: “You may be required to use the accrual method of accounting.” Under it, “report farm income when it is due, paid, earned, or taken into account as revenue in its applicable financial statement, not when you receive it.” Inventory is part of the method: “In most cases, you must include animals and crops in your inventory if you use this method.” The method choice is on line C, covered on lines A to G.
Lines 37 to 44: the income lines
| Line | What it asks |
|---|---|
| 37 | “Sales of livestock, produce, grains, and other products” |
| 38a, 38b | Cooperative distributions (Form 1099-PATR) and the taxable amount |
| 39a, 39b | Agricultural program payments and the taxable amount |
| 40a to 40c | CCC loans reported under election, forfeited, and the taxable amount |
| 41 | “Crop insurance proceeds” |
| 42 | “Custom hire (machine work) income” |
| 43 | “Other income” |
| 44 | Add amounts in the right column for lines 37 through 43 |
For lines 38a to 40c the Instructions say “See the instructions for lines 3a through 5c, earlier.” and for line 43 “See Line 8, earlier.” Those are on the lines 3 to 5 and lines 6 to 9 pages.
Lines 45 to 50: inventory and gross income
| Line | What it asks |
|---|---|
| 45 | “Inventory of livestock, produce, grains, and other products at beginning of the year.” |
| 46 | “Cost of livestock, produce, grains, and other products purchased during the year” |
| 47 | “Add lines 45 and 46” |
| 48 | “Inventory of livestock, produce, grains, and other products at end of year” |
| 49 | “Cost of livestock, produce, grains, and other products sold. Subtract line 48 from line 47*” |
| 50 | “Gross income. Subtract line 49 from line 44. Enter the result here and on Part I, line 9” |
The footnote on the form covers a valuation exception: “If you use the unit-livestock-price method or the farm-price method of valuing inventory and the amount on line 48 is larger than the amount on line 47, subtract line 47 from line 48. Enter the result on line 49. Add lines 44 and 49. Enter the total on line 50 and on Part I, line 9.”
Example with invented numbers
Illustration, not an IRS example. An invented accrual farm has the amounts below; every result is computed, using the standard method where line 48 is not larger than line 47.
| Line | Entry | Amount |
|---|---|---|
| 44 | Add income lines 37 to 43 (invented input for the computed lines) | $90,000 |
| 45 | Inventory at beginning of the year (invented input for the computed lines) | $30,000 |
| 46 | Cost of items purchased during the year (invented input for the computed lines) | $12,000 |
| 47 | Add lines 45 and 46 (computed) | $42,000 |
| 48 | Inventory at end of the year (invented input for the computed lines) | $35,000 |
| 49 | Subtract line 48 from line 47 (computed) | $7,000 |
| 50 | Subtract line 49 from line 44 (computed) | $83,000 |
Line 50 is $83,000, entered again on Part I line 9. Under the footnote method with the same inputs the arithmetic would reverse only if line 48 exceeded line 47, which it does not here.
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
- Completing all of Part I on an accrual return. Accrual filers take only line 9 from Part I, copied from line 50.
- Using the footnote subtraction when line 48 is not larger than line 47. The reversal only applies to the unit-livestock-price and farm-price methods.
- Counting a sale on Form 4797 in line 45 inventory. The form says not to include sales reported on Form 4797.
- Leaving out ending inventory of crops and livestock that are required to be inventoried.
Related: Schedule F overview, Schedule F lines A to G, and Schedule C Part III.
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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.