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Not-for-Profit Farming: Farm Business Taxes (2025 IRS Guide)

This guide covers “Not-for-Profit Farming” within farm business taxes. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 225 (2025), Farmer's Tax Guide, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Not-for-Profit Farming

If you operate a farm for profit, you can deduct all the ordinary and necessary expenses of carrying on the business of farming on Schedule F. However, if you don’t carry on your farming activity, or other activity you engage or invest in, to make a profit, you report the income from the activity on Schedule 1 (Form 1040), line 8j. You can no longer deduct expenses of carrying on the activity, even if you itemize your deductions on Schedule A (Form 1040).

Expenses for activities you do as a hobby, or mainly for sport or recreation cannot be deducted. This also applies to an investment activity intended only to produce tax losses for the investors.

The deductibility of not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It doesn’t apply to corporations other than S corporations.

In determining whether you are carrying on your farming activity for profit, all the facts are taken into account. No one factor alone is decisive. Among the factors to consider are whether:

  • You operate your farm in a businesslike manner;

  • The time and effort you spend on farming indicate you intend to make it profitable;

  • You depend on income from farming for your livelihood;

  • Your losses are due to circumstances beyond your control or are normal in the start-up phase of farming;

  • You change your methods of operation in an attempt to improve profitability;

  • You, or your advisors, have the knowledge needed to carry on the farming activity as a successful business;

  • You were successful in making a profit in similar activities in the past;

  • You make a profit from farming in some years and the amount of profit you make; and

  • You can expect to make a future profit from the appreciation of the assets used in the farming activity.

Presumption of profit.

Your farming or other activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. The activity must be substantially the same for each year within this period. You have a profit when the gross income from an activity is more than the deductions for it.

If a taxpayer dies before the end of the 5-year (or 7-year) period, the period ends on the date of the taxpayer’s death.

If your business or investment activity passes this 3- (or 2-) years-of-profit test, presume it is carried on for profit. This means the limits discussed here don’t apply. You can take all your business deductions from the activity on Schedule F, even for the years that you have a loss. You can rely on this presumption in every case, unless the IRS shows it isn’t valid.

If you fail the 3- (or 2-) years-of-profit test, you may still be considered to operate your farm for profit by considering the factors listed earlier.

Using the presumption later.

If you are starting out in farming and don’t have 3 (or 2) years showing a profit, you may want to take advantage of this presumption later, after you have had the 5 (or 7) years of experience allowed by the test.

You can choose to do this by filing Form 5213. Filing this form postpones any determination that your farming activity isn’t carried on for profit until 5 (or 7) years have passed since you first started farming. You must file Form 5213 within 3 years after the due date of your return for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving a written notice from the IRS proposing to disallow deductions attributable to the activity.

The benefit gained by making this choice is that the IRS won’t immediately question whether your farming activity is engaged in for profit. Accordingly, it won’t limit your deductions. Rather, you will gain time to earn a profit in 3 (or 2) out of the first 5 (or 7) years you carry on the farming activity. If you show 3 (or 2) years of profit at the end of this period, your deductions aren’t limited under these rules. If you don’t have 3 (or 2) years of profit (and can’t otherwise show that you operated your farm for profit), the limit applies retroactively to any year in the 5-year (or 7-year) period with a loss.

Filing Form 5213 automatically extends the period of limitations on any year in the 5-year (or 7-year) period to 2 years after the due date of the return for the last year of the period. The period is extended only for deductions of the activity and any related deductions that might be affected.

Limit on deductions and losses.

If your activity isn’t carried on for profit, take deductions only in the following order, and only to the extent stated in the three categories.

Category 1.

Deductions you can take for personal as well as for business activities are allowed in full. For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses (attributable to a federally declared disaster), belong in this category. See chapter 11 for more information. For the limits that apply to mortgage interest, see Pub. 936.

Category 2.

Deductions that don’t result in an adjustment to the basis of property are allowed next, but only to the extent your gross income from the activity is more than the deductions you take (or could take) under the first category. Most business deductions, such as those for fertilizer, feed, insurance premiums, utilities, wages, etc., belong in this category.

Category 3.

Business deductions that decrease the basis of property are allowed last, but only to the extent the gross income from the activity is more than deductions you take (or could take) under the first two categories. The deductions for depreciation, amortization, and the part of a casualty loss an individual could not deduct in category 1 belong in this category. Where more than one asset is involved, divide depreciation and these other deductions proportionally among those assets.

.The Tax Cuts and Jobs Acts (TCJA) suspended miscellaneous itemized deductions, so these deductions are not available for tax years beginning after December 31, 2017 and before January 1, 2026..

Partnerships and S corporations.

If a partnership or S corporation carries on a not-for-profit activity, these limits apply at the partnership or S corporation level. They are reflected in the individual shareholder’s or partner’s distributive shares.

More information.

For more information on not-for-profit activities, see Not-for-Profit Activities in chapter 9 of Pub. 334.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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