Quick answer: Farmland rental income is typically reported on Schedule E and is not subject to the 15.3% self-employment tax — a meaningful advantage over actively farmed income. You pay ordinary income tax on net rental income (rent received minus deductible expenses). The classification shifts to Schedule F if you materially participate in the operation, which triggers SE tax.
Schedule E vs. Schedule F: The Critical Difference
The IRS distinguishes between passive farm rental and active farm operation. A landowner who simply collects a cash rent check and doesn't participate in farming decisions reports on Schedule E — rental income minus expenses like property tax, depreciation on improvements, insurance, and maintenance. This income is not subject to self-employment tax.
A landlord who shares input costs, advises the tenant on planting decisions, or is otherwise considered to "materially participate" may be required to report on Schedule F. Schedule F income is subject to self-employment tax on the first $160,200 (2023 threshold) at 15.3%, and at 2.9% above that. For a landlord collecting $80,000 in crop share income, the difference between Schedule E and Schedule F treatment is approximately $11,000–$12,000 in SE tax. This is a real number that the structure of your lease arrangement directly affects.
Deductible Expenses Against Rental Income
Whether you file Schedule E or F, you can deduct legitimate expenses related to the rental:
- Real property taxes on the land
- Depreciation on farm buildings, fencing, irrigation infrastructure, and other improvements
- Insurance on the property
- Repairs and maintenance (fences, waterways, terraces)
- Management fees paid to a farm manager
- Legal and accounting fees related to the farm
- Input costs if you share them under a crop share arrangement
Net Investment Income Tax on Farm Rental
For higher-income taxpayers, passive farm rental income may also be subject to the 3.8% Net Investment Income Tax (NIIT) if modified AGI exceeds $200,000 (single) or $250,000 (married). This is in addition to ordinary income tax. Active farmers who materially participate avoid NIIT on their farming income — but face SE tax instead. Neither outcome is necessarily better; it depends on your income level and situation. Work with a CPA who handles farm returns annually — the filing classifications have changed under recent IRS guidance and the rules have nuances that generalist preparers miss.
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Kyle Ellison is a fourth-generation Texas Panhandle rancher and licensed financial professional in TX, CA, NV, MT, UT, NM.