all india debt and investment survey 2021 1040

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All india debt and investment survey 2021 1040 ziegler investment banking salary average

All india debt and investment survey 2021 1040

For single bonds or accounts containing a single bond, enter the CUSIP number of the tax-exempt bond for which tax-exempt interest is reported in box 8 or tax credit bond including build America bond and specified tax credit bond for which a tax credit or taxable interest, as applicable, is reported in box 1. If the tax-exempt interest or the tax credit is reported in the aggregate for multiple bonds or accounts, enter "various. See Pub. They are provided for your convenience only and need not be completed for the IRS.

Use the state information boxes to report payments for up to two states. Keep the information for each state separated by the dash line. If you withheld state income tax on this payment, you may enter it in box In box 15, enter the abbreviated name of the state, and in box 16, enter the payer's state identification number. The state number is the payer's identification number assigned by the individual state.

If a state tax department requires that you send them a paper copy of this form, use Copy 1 to provide information to the state tax department. Give Copy 2 to the recipient for use in filing the recipient's state income tax return. A tax information statement that includes the information provided to the IRS on Form INT, as well as additional information identified in Regulations section 1.

The written tax information statement must be furnished to the TIH by March The amount of an item of a trust expense that is attributable to a TIH must be included on the tax information statement provided to the TIH and is not required to be included in box 5 of Form INT.

These reporting rules apply only to FASITs in existence on October 22, , to the extent that regular interests issued by the FASIT before that date continue to remain outstanding in accordance with the original terms of issue. You are not required to file or issue Form INT for exempt recipients including, but not limited to, the following. No amount should be reported in box 3. The statement must also show the information specified in Regulations section 1.

In addition, the statement furnished by a REMIC must show, for each calendar quarter, the information specified in Regulations section 1. Also, see Regulations section 1. The statement must be furnished to holders by March An issuer with any bond outstanding or other evidence of indebtedness in registered or bearer form issued with OID.

A financial institution having other deposit arrangements, such as time deposits or bonus-savings plans, if the arrangements have OID and a term of more than 1 year. A broker or other middleman holding an OID obligation, including CDs, as nominee for the actual owner. OID is the excess of an obligation's stated redemption price at maturity over its issue price acquisition price for a stripped bond or coupon.

Treasury obligations; and Box 11, later, for tax-exempt OID. Ordinarily, you will file only one Form OID for the depositor or holder of a particular obligation for the calendar year. If a person holds more than one discount obligation, issue a separate Form OID for each obligation.

However, if a person holds more than one certificate, you can file a single Form OID only if 1 they are the same issue, 2 held the same amount of time during the calendar year, 3 acquired at the same time, 4 acquired for the same price, and 5 all debt elections or lack of elections are the same for all certificates. For information about how to compute OID, see sections — and their regulations and section If you are a broker or middleman who holds a bank CD as nominee, whether or not you sold the CD to the owner, you must determine the amount of OID includible in the income of the owner, if any, and report it on Form OID.

It is available at IRS. Issuers of certain publicly offered debt instruments having OID must file Form , Information Return for Publicly Offered Original Issue Discount Instruments, generally within 30 days after the date of issuance, or, if later, the date of registration with the Securities and Exchange Commission. The information provided on that form will enable the IRS to update Pub.

See Form , available at IRS. Report interest on U. For a covered security acquired with acquisition premium, you must report the amount of acquisition premium amortization for the tax year. In general, you must use the rules in Regulations section 1. You may, but are not required to, report the acquisition premium amortization for a tax-exempt obligation that is a covered security acquired before January 1, If you are required to report the amount of acquisition premium amortized for the tax year, you may report either 1 a net amount of OID that reflects the offset of OID by the amount of acquisition premium amortization for the year, or 2 a gross amount for both the OID and the acquisition premium amortization for the year.

For a noncovered security acquired with acquisition premium, you are only required to report the gross amount of OID. If you are required to file Form OID, you must furnish a statement to the recipient. For more information about the requirement to furnish an official form or acceptable substitute statement to recipients, see part M in the current General Instructions for Certain Information Returns. The account number is required if you have multiple accounts for a recipient for whom you are filing more than one Form OID.

Report the taxable OID on the obligation for the part of the year it was owned by the record holder. Do not include the amount reported in box 8. Enter any qualified stated interest paid or credited on this obligation during the year. Interest reported here must not be reported on Form INT.

Enter interest or principal forfeited because of an early withdrawal of time deposits, such as an early withdrawal from a CD, that is deductible from gross income by the recipient. Do not reduce the amounts in boxes 1 and 2 by the amount of the forfeiture. For detailed instructions for determining the amount of forfeiture deductible by the holder, see Rev.

For example, if a recipient does not furnish its TIN to you in the manner required, you must backup withhold. The applicable interest rate applies to amounts required to be reported in boxes 1, 2, and 8, but is limited to the cash paid on these obligations. Before applying the applicable interest rate, you may reduce the amounts reported in boxes 1 and 2 by the amount reported in box 3. For more information on backup withholding, including the applicable rate, see part N in the current General Instructions for Certain Information Returns.

You may, but are not required to, report the market discount for a tax-exempt obligation that is a covered security acquired before January 1, For a covered security acquired with acquisition premium, enter the amount of premium amortization for the part of the year the debt instrument was owned by the holder.

If you reported a net amount of OID in box 1, 8, or 11, as applicable, leave this box blank. You may, but are not required to, report the acquisition premium for a tax-exempt obligation that is a covered security acquired before January 1, If the issuer of the obligation is other than the payer, show the name of the issuer. Enter the OID on a U. Treasury obligation for the part of the year it was owned by the record holder. Do not include this amount in box 1.

You may enter any qualified stated interest on the Treasury obligation in box 2. The amount in box 8 may be a negative number for example, if a Treasury Inflation Protected Security has a deflation adjustment for the year. For a taxable covered security acquired at a premium, enter the amount of bond premium amortization allocable to the interest paid during the tax year, unless you were notified in writing that the holder did not want to amortize bond premium under section If you are required to report bond premium amortization and you reported a net amount of interest in box 2, leave this box blank.

For a tax-exempt obligation that is a covered security acquired on or after January 1, , enter the OID for the part of the year it was owned by the record holder. You may, but are not required to, report the OID for a tax-exempt obligation that is a covered security acquired before January 1, If you withheld state income tax on this payment, enter it in box In box 12, enter the abbreviated name of the state, and in box 13, enter the payer's state identification number.

If the WHMT has a start-up date on or after August 13, , and on or before January 24, , and the trustee has attempted in good faith, but without success, to obtain the historical information required to provide OID information, no penalties will be imposed if the trustee and middlemen of the WHMT do not provide OID information.

The trustee must provide a statement to middlemen indicating that the trustee is not providing OID information because the trustee has attempted, in good faith, to obtain the information necessary to calculate OID but has been unsuccessful. A tax information statement that includes the information provided to the IRS on Form OID, as well as additional information identified in Regulations section 1. The amount of an item of a trust expense that is attributable to a TIH must be included on the tax information statement provided to the TIH and is not required to be included in box 9 of Form OID.

You are not required to file or issue Form OID for exempt recipients including, but not limited to, the following. No amount should be reported in box 8. Continuous-use Form OID and instructions. Nonresident aliens. Exempt recipients. Interest excluded from reporting. Other exception.

When is a payment made? Reporting interest and OID. Reporting interest and bond premium. Statements to recipients. Account number. FATCA filing requirement checkbox. Payer's RTN optional. Box 1. Interest Income Interest to holders of tax credit bonds. Box 2. Early Withdrawal Penalty Box 3. Interest on U. Savings Bonds and Treas. Obligations Box 4. Federal Income Tax Withheld Box 5. Investment Expenses Box 6. Foreign Tax Paid Box 7. Foreign Country or U. Possession Box 8.

Tax-Exempt Interest Box 9. Market Discount Box Bond Premium Box Treasury Obligations Box Boxes 15— Interest Income Box 5. Reporting OID. Reporting OID and acquisition premium. Original Issue Discount Box 2. Other Periodic Interest Box 3.

Early Withdrawal Penalty Box 4. Market Discount Box 6. Acquisition Premium Box 7. Description Box 8. Original Issue Discount on U. Treasury Obligations Box 9. Investment Expenses Box Requirement to furnish a tax information statement to the TIH. Other Periodic Interest Box 9. Section references are to the Internal Revenue Code unless otherwise noted. Who must file. When and where to file. Electronic reporting. Corrected and void returns. Taxpayer identification numbers TINs. Backup withholding.

Generally, an item considered material for financial statement purposes is also considered material for income tax purposes. You generally choose an accounting method for your farm business when you file your first income tax return that includes a Schedule F Form , Profit or Loss From Farming. If you later want to change your accounting method, you must generally get IRS approval. Generally, you can use any of the following accounting methods. Each method is discussed in detail below.

Special methods of accounting for certain items of income and expenses. Combination hybrid method using elements of two or more of the above methods. You can account for business and personal items using different accounting methods. For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. If you operate two or more separate and distinct businesses, you can use a different accounting method for each business.

Generally, no business is separate and distinct unless a complete and separate set of books and records is maintained for each business. Most farmers use the cash method because they find it easier to keep records using the cash method. Certain farm corporations and partnerships and all tax shelters are generally required to use an accrual method of accounting. See Accrual Method Required , later. Also, see Inventory , later.

Under the cash method, include in your gross income all items of income you actually or constructively received during the tax year. Items of income include money received as well as property or services received. If you receive property or services, you must include the fair market value FMV of the property or services in income.

See chapter 3 for information on how to report farm income on your income tax return. Income is constructively received when an amount is credited to your account or made available to you without restriction. You do not need to have possession of the income for it to be treated as income for the tax year. You need to have the ability to receive the income. If you authorize someone to be your agent and receive income for you, you are considered to have received the income when your agent receives it.

Income is not constructively received if your receipt of the income is subject to substantial restrictions or limitations. You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. You must report the income in the year the money or property is received or made available to you without restriction. She was told in December that her payment was available.

She requested not to be paid until January Frances must include this payment in her income because it was made available to her in If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. If you receive income in this way, you constructively receive the income when the debt is canceled or paid. See Cancellation of Debt in chapter 3 for more information. If you sell an item under a deferred payment contract that calls for payment in a future year, there is no constructive receipt in the year of sale.

However, if the sales contract states that you have the right to the proceeds of the sale from the buyer at any time after delivery of the item, then you must include the sales price in income in the year of the sale, regardless of when you actually receive payment. You are a farmer who uses the cash method and a calendar tax year.

You sell grain in December under a bona fide arm's-length contract that calls for payment in You include the proceeds from the sale in your gross income since that is the year payment is received. However, if the contract states that you have the right to the proceeds from the buyer at any time after the grain is delivered, you must include the sales price in your income, even if payment is received in the following year.

If you include an amount in income and in a later year you have to repay all or part of it, then you can usually deduct the repayment in the year repaid. The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. See Repayments in chapter 11 of Pub. Under the cash method, generally you deduct expenses in the tax year you pay them.

This includes business expenses for which you contest liability. However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained under Uniform Capitalization Rules in chapter 6. See chapter 4 for information on how to deduct farm business expenses on your income tax return. Generally, you cannot deduct expenses paid in advance. This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year.

An exception applies if the expense qualifies for the month rule. Under the month rule, a taxpayer is not required to capitalize amounts paid to create certain rights or benefits for the earlier of the following:. The end of the tax year after the tax year in which payment is made. See chapter 4 for special rules for prepaid farm supplies and prepaid livestock feed. Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred.

The purpose of an accrual method of accounting is to correctly match income and expenses in the correct tax year. Certain large farm businesses must use an accrual method of accounting for its farm activities and for sales and purchases of inventory items.

Generally, you include an amount in income for the tax year in which all events that fix your right to receive the income have occurred, and you can determine the amount with reasonable accuracy. Under this rule, include an amount in income on the earliest of the following dates. When taken into account in an applicable financial statement or such other statement the IRS may specify.

Generally, if you keep an inventory, you must use an accrual method of accounting to determine your gross income. However, see Exception below. An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Also, see Farm Inventory , later, for more information on items that must be included in inventory by farmers, and inventory valuation methods for farmers. In this case, the farm can use a method of accounting that 1 treats inventory as nonincidental materials and supplies, or 2 accounts for the inventory in the same manner as the applicable financial statements, or books and records if there are no financial statements.

Under an accrual method of accounting, you generally deduct or capitalize a business expense when both of the following apply. Generally, you cannot deduct or capitalize a business expense until economic performance occurs. If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services.

Jane, who is a farmer, uses a calendar tax year and an accrual method of accounting. To take advantage of early payment discounts, she paid for seed in October The seed was delivered to her in March Economic performance did not occur until the seed was delivered and planted.

Jane incurs the expense in An exception to the economic performance rule allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. For more information, see Economic Performance in Pub.

Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible.

Generally, the following businesses, if engaged in farming, are generally required to use an accrual method of accounting. A partnership with a corporation as a partner, if that corporation meets the requirements of 1 above. Items 1 and 2 above do not apply to an S corporation or a business operating a nursery or sod farm, or the raising or harvesting of trees other than fruit and nut trees. A tax shelter is a partnership, noncorporate enterprise, or S corporation that meets either of the following tests.

Its principal purpose is the avoidance or evasion of federal income tax. It is a farming syndicate. A farming syndicate is an entity that meets either of the following tests. Interests in the activity have been offered for sale in an offering required to be registered with a federal or state agency with the authority to regulate the offering of securities for sale.

A "limited partner" is one whose personal liability for partnership debts is limited to the money or other property the partner contributed or is required to contribute to the partnership. A "limited entrepreneur" is one who has an interest in an enterprise other than as a limited partner and does not actively participate in the management of the enterprise.

If you are required to keep an inventory, you should keep a complete record of your inventory as part of your farm records. This record should show the actual count or measurement of the inventory. It should also show all factors that enter into its valuation, including quality and weight, if applicable.

Below are some items that could be included in inventory. If you are in the hatchery business, and use an accrual method of accounting, you must include in inventory eggs in the process of incubation. All harvested and purchased farm products held for sale or for feed or seed, such as grain, hay, silage, concentrates, cotton, tobacco, etc. Supplies acquired for sale or that become a physical part of items held for sale must be included in inventory. Deduct the cost of supplies in the year used or consumed in operations.

Do not include incidental supplies in inventory as these are deductible in the year of purchase. Livestock held primarily for sale must be included in inventory. Livestock held for draft, breeding, or dairy purposes can either be depreciated or included in inventory. Also, see Unit-livestock-price method , later. If you are in the business of breeding and raising chinchillas, mink, foxes, or other fur-bearing animals, these animals are livestock for inventory purposes.

Generally, growing crops are not required to be included in inventory. However, if the crop has a preproductive period of more than 2 years, you may have to capitalize or include in inventory costs associated with the crop. See Uniform capitalization rules below. Also, see Uniform Capitalization Rules in chapter 6.

Your inventory should include all items held for sale, or for use as feed, seed, etc. The following applies if you are required to use an accrual method of accounting. The uniform capitalization rules apply to all costs of raising a plant, even if the preproductive period of raising a plant is 2 years or less. The costs of animals are subject to the uniform capitalization rules. The following methods, described below, are those generally available for valuing inventory.

The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. If you value your livestock inventory at cost or the lower of cost or market, you do not need IRS approval to change to the unit-livestock-price method. However, if you value your livestock inventory using the farm-price method, then you must obtain permission from the IRS to change to the unit-livestock-price method.

Under this method, each item, whether raised or purchased, is valued at its market price less the direct cost of disposition. Market price is the current price at the nearest market in the quantities you usually sell. Cost of disposition includes broker's commissions, freight, hauling to market, and other marketing costs. If you use this method, you must use it for your entire inventory, except that livestock can be inventoried under the unit-livestock-price method.

This method recognizes the difficulty of establishing the exact costs of producing and raising each animal. You group or classify livestock according to type and age and use a standard unit price for each animal within a class or group. The unit price you assign should reasonably approximate the normal costs incurred in producing the animals in such classes.

Unit prices and classifications are subject to approval by the IRS on examination of your return. You must annually reevaluate your unit livestock prices and adjust the prices upward or downward to reflect increases or decreases in the costs of raising livestock. IRS approval is not required for these adjustments. Any other changes in unit prices or classifications do require IRS approval.

If you use this method, include all raised livestock in inventory, regardless of whether they are held for sale or for draft, breeding, sport, or dairy purposes. This method accounts only for the increase in cost of raising an animal to maturity. It does not provide for any decrease in the animal's market value after it reaches maturity. Also, if you raise cattle, you are not required to inventory hay you grow to feed your herd. Do not include sold or lost animals in the year-end inventory.

If your records do not show which animals were sold or lost, treat the first animals acquired as sold or lost. The animals on hand at the end of the year are considered those most recently acquired. You must include in inventory all livestock purchased primarily for sale. You can choose either to include in inventory or depreciate livestock purchased for draft, breeding, sport, or dairy purposes.

However, you must be consistent from year to year, regardless of the method you have chosen. You cannot change your method without obtaining approval from the IRS. You must include in inventory animals purchased after maturity or capitalize them at their purchase price. If the animals are not mature at purchase, increase the cost at the end of each tax year according to the established unit price.

However, in the year of purchase, do not increase the cost of any animal purchased during the last 6 months of the year. This "no increase" rule does not apply to tax shelters, which must make an adjustment for any animal purchased during the year. It also does not apply to taxpayers that must make an adjustment to reasonably reflect the particular period in the year in which animals are purchased, if necessary to avoid significant distortions in income. A farmer can determine costs required to be allocated under the uniform capitalization rules by using the farm-price or unit-livestock-price inventory method.

This applies to any plant or animal, even if the farmer does not hold or treat the plant or animal as inventory property. You are a farmer who uses an accrual method of accounting. You keep your books on the calendar year basis. You sell grain in December but you are not paid until January Because you use the accrual method, you report the grain sale in because that is when the income was earned, even though you did not receive the income until Assume the same facts as in Example 1 except that you use the cash method and there was no constructive receipt of the sales proceeds in Under the cash method, you include the sales proceeds in income in , the year you receive payment.

Deduct the costs of producing the grain in the year you pay for them. If you do not harvest and dispose of your crop in the same tax year that you plant it, you can, with IRS approval, use the crop method of accounting. You cannot use the crop method for any tax return, including your first tax return, unless you receive approval from the IRS. Under this method, you deduct the entire cost of producing the crop, including the expense of seed or young plants, in the year you realize income from the crop.

See chapter 4 for details on deducting the costs of operating a farm. Also, see Regulations section 1. Amortization, see chapter 7. Casualties, see chapter Condemnations, see chapter Depletion, see chapter 7. Depreciation, see chapter 7.

Farm business expenses, see chapter 4. Farm income, see chapter 3. Installment sales, see chapter Soil and water conservation expenses, see chapter 5. Thefts, see chapter Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently.

However, the following restrictions apply. If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Your treatment of any material item, such as a change in your method of valuing inventory for example, a change from the farm-price method to the unit-livestock-price method, discussed earlier.

To obtain approval, you must generally file Form However, there are instances when you can obtain automatic consent to change certain methods of accounting. Also, see Pub. Go to USDA. You may receive income from many sources. You must report the income from all the different sources on your tax return, unless it is excluded by law. Where you report the income on your tax return depends on its source. Individual Income Tax Return. The rules discussed in this chapter assume you use the cash method of accounting.

Under the cash method, you generally include an item of income in gross income in the year you receive it. See Cash Method in chapter 2. If you use an accrual method of accounting, different rules may apply to your situation. See Accrual Method in chapter 2. Individuals, trusts, partnerships, S corporations, LLCs taxed as partnerships, and sole members of a domestic LLC engaged in the business of farming report farm income on Schedule F Form Use this schedule to figure the net profit or loss from regular farming operations.

Corporations use Form to report the income or loss from regular farming operations. Income from farming reported on Schedule F includes amounts you receive from cultivating, operating, or managing a farm for gain or profit, either as owner or tenant. This includes income from operating a stock, dairy, poultry, fish, fruit, or truck farm and income from operating a plantation, ranch, range, orchard, or grove. It also includes income from the sale of crop shares if you materially participate in producing the crop.

See Rents Including Crop Shares , later. Income received from operating a nursery, which specializes in growing ornamental plants, is considered to be income from farming. Income reported on Schedule F doesn't include gains or losses from sales or other dispositions of the following farm assets. Gains and losses from most dispositions of farm assets are discussed in chapters 8 and 9. Gains and losses from casualties, thefts, and condemnations are discussed in chapter Table shows where to report the sale of farm products on your tax return.

Amounts received from the sales of products you raised on your farm for sale or bought for resale , such as livestock, produce, or grains, are reported on Schedule F. This includes money and the fair market value of any property or services you receive. When you sell farm products bought for resale, your profit or loss is the difference between your selling price money plus the fair market value of any property and your basis in the item usually the cost. See chapter 6 for information on the basis of assets.

You generally report these amounts on Schedule F for the year you receive payment. Sales of livestock held for draft, breeding, sport, or dairy purposes may result in ordinary or capital gains or losses, depending on the circumstances. In either case, you should not report these sales on Schedule F. Instead, report these sales on Form Animals that you don't hold primarily for sale are considered business assets of your farm.

If your agent sells your farm products, you have constructive receipt of the income when your agent receives payment and you must include the net proceeds from the sale in gross income for the year the agent receives payment. This applies even if your agent pays you in a later year. For a discussion on constructive receipt of income, see Cash Method under Accounting Methods in chapter 2. If you sell or exchange more livestock, including poultry, than you normally would in a year because of a drought, flood, or other weather-related condition, you may be able to postpone reporting the gain from the additional animals until the next year.

You must meet all the following conditions to qualify. You can show that, under your usual business practices, you wouldn't have sold or exchanged the additional animals this year except for the weather-related condition. The weather-related condition caused an area to be designated as eligible for assistance by the federal government. Disaster assistance and emergency relief for individuals and businesses.

Special tax law provisions may help taxpayers and businesses recover financially from the impact of a disaster, especially when the federal government declares their location to be a major disaster area. Get the latest tax relief guidance in disaster situations at IRS. Sales or exchanges made before an area became eligible for federal assistance qualify if the weather-related condition that caused the sale or exchange also caused the area to be designated as eligible for federal assistance.

The designation can be made by the President, the Department of Agriculture or any of its agencies , or by other federal departments or agencies. A weather-related sale or exchange of livestock other than poultry held for draft, breeding, or dairy purposes may be an involuntary conversion. See Other Involuntary Conversions in chapter You must determine the number of animals you would have sold had you followed your usual business practice in the absence of the weather-related condition.

Do this by considering all the facts and circumstances, but don't take into account your sales in any earlier year for which you postponed the gain. If you haven't yet established a usual business practice, rely on the usual business practices of similarly situated farmers in your general region. The livestock doesn't have to be raised or sold in an area affected by a weather-related condition for the postponement to apply.

However, the sale must occur solely because of a weather-related condition that affected the water, grazing, or other requirements of the livestock. This requirement generally won't be met if the costs of feed, water, or other requirements of the livestock affected by the weather-related condition aren't substantial in relation to the total costs of holding the livestock.

You must figure the amount to be postponed separately for each generic class of animals—for example, hogs, sheep, and cattle. Follow these steps to figure the amount of gain to be postponed for each class of animals. Divide the total income realized from the sale of all livestock in the class during the tax year by the total number of such livestock sold. For this purpose, don't treat any postponed gain from the previous year as income received from the sale of livestock.

Multiply the result in 1 by the excess number of such livestock sold solely because of weather-related conditions. You're a calendar year taxpayer and you normally wean beef calves in the fall and feed them through the winter, selling in January or February. As a result of drought, you decide you don't have enough feed for all of your calves, so you sell 35 head in the fall at weaning in addition to the calves sold in January.

As a result, you sold head during On August 10, , as a result of drought, the affected area was declared a disaster area eligible for federal assistance. To postpone gain, attach a statement to your tax return for the year of the sale. The statement must include your name and address and give the following information for each class of livestock for which you're postponing gain.

Evidence of the weather-related conditions that forced the early sale or exchange of the livestock and the date, if known, on which an area was designated as eligible for assistance by the federal government because of weather-related conditions. A statement explaining the relationship of the area affected by the weather-related condition to your early sale or exchange of the livestock.

The number of animals you would have sold in the tax year had you followed your normal business practice in the absence of weather-related conditions. The total number of animals sold and the number sold because of weather-related conditions during the tax year. A computation, as described above, of the income to be postponed for each class of livestock. Generally, you must file the statement and the return by the due date of the return, including extensions.

However, for sales or exchanges treated as an involuntary conversion from weather-related sales of livestock in an area eligible for federal assistance discussed in chapter 11 , you can file this statement at any time during the replacement period. For other sales or exchanges, if you timely filed your return for the year without postponing gain, you can still postpone gain by filing an amended return within 6 months of the due date of the return excluding extensions.

Attach the statement to the amended return and write "Filed pursuant to section File the amended return at the same address you filed the original return. Once you have filed the statement, you can cancel your postponement of gain only with the approval of the IRS. The rent you receive for the use of your farmland by another person or entity is generally rental income, not farm income.

However, the rent is farm income if:. Your arrangement with your tenant provides that the you will materially participate in the production or management of production of the farm products on the land, and. If you pasture someone else's livestock and take care of them for a fee, the income is from your farming business.

You must enter it as "Other Income" on Schedule F. If you simply rent your pasture or other farm real estate for a flat cash amount without providing services, report the income as rent on Schedule E Form , Part I. You must include rent you receive in the form of crop shares in income in the year you convert the shares to money or the equivalent of money.

It doesn't matter whether you use the cash method of accounting or an accrual method of accounting. If you receive rent in the form of crop shares or livestock, the rental income is included in self-employment income if:. Report this income on Form and carry the net income or loss to Schedule E Form , page 2, if:.

Crop shares you receive as a landlord and feed to your livestock are considered converted to money when fed to the livestock. You must include the fair market value of the crop shares in income at that time.

You're entitled to a business expense deduction for the livestock feed in the same amount and at the same time you include the fair market value of the crop share as rental income. Although these two transactions cancel each other for figuring adjusted gross income on Form or SR, they may be necessary to figure your self-employment tax.

Crop shares you receive as a landlord and give to others are considered converted to money when you make the gift. You must report the fair market value of the crop share as income, even though someone else receives payment for the crop share. This applies even if the gift is made to a qualified charitable organization. A tenant farmed part of your land under a crop-share arrangement. The tenant harvested and delivered the crop in your name to an elevator company. Before selling any of the crop, you instructed the elevator company to cancel your warehouse receipt and make out new warehouse receipts in equal amounts of the crop in the names of your children.

They sell their crop shares in the following year and the elevator company makes payments directly to your children. In this situation, you're considered to have received rental income and then made a gift of that income.

You must include the fair market value of the crop shares in your income for the tax year you gave the crop shares to your children. If you're involved in a rental or crop-share lease arrangement, any loss from these activities may be subject to the limits under the passive loss rules. You must include in income most government payments, such as those for approved conservation practices, livestock indemnity payments, or livestock forage disaster payments whether you receive them in cash, materials, services, or commodity certificates.

However, you can exclude from income some payments you receive under certain cost-sharing conservation programs. See Cost-Sharing Exclusion Improvements , later. Report the agricultural program payment on the appropriate line of Schedule F, Part I. Report the full amount even if you return a government check for cancellation, refund any of the payment you receive, or the government collects all or part of the payment from you by reducing the amount of some other payment or Commodity Credit Corporation CCC loan.

However, you can deduct the amount you refund or return or that reduces some other payment or loan to you. Generally, you don't report loans you receive as income. However, if you pledge part or all of your production to secure a CCC loan, you can treat the loan as if it were a sale of the crop and report the loan proceeds as income in the year you receive them.

Once you report a CCC loan as income for the year received, you must generally report all CCC loans in that year and later years in the same way. However, you can obtain for your tax year an automatic consent to change your method of accounting for loans received from the CCC, from including the loan amount in gross income for the tax year in which the loan is received to treating the loan amount as a loan.

Revenue Procedure , I. You can request income tax withholding from CCC loan payments you receive. Use Form W-4V. See chapter 16 for information about ordering the form. To elect to report a CCC loan as income, include the loan proceeds as income on Schedule F for the year you receive it. Attach a statement to your return showing the details of the loan. You must file the statement and the return by the due date of the return, including extensions. If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return excluding extensions.

When you make this election, the amount you report as income becomes your basis in the commodity. If you later repay the loan, redeem the pledged commodity, and sell it, you report as income at the time of sale the sale proceeds minus your basis in the commodity. If the sale proceeds are less than your basis in the commodity, you can report the difference as a loss on Schedule F. If you forfeit the pledged crops to the CCC in full payment of the loan, the forfeiture is treated for tax purposes as a sale of the crops.

If you didn't report the loan proceeds as income for the year you received them, you must include them in your income for the year of the forfeiture. The amount of any CCC loan outstanding when you forfeited your commodity should also be indicated on the form. Under the CCC nonrecourse marketing assistance loan program, your repayment amount for a loan secured by your pledge of an eligible commodity is generally based on the lower of the loan rate or the prevailing world market price for the commodity on the date of repayment.

If you repay the loan when the world price is lower, the difference between that repayment amount and the original loan amount is market gain. Whether you use cash or CCC certificates to repay the loan, you will receive a Form G showing the market gain you realized. Market gain should be reported as follows. However, reduce adjust the basis of the commodity for the amount of the market gain.

Mike Green is a cotton farmer. He uses the cash method of accounting and files his tax return on a calendar year basis. He has deducted all expenses incurred in producing the cotton and has a zero basis in the commodity. How he reports this market gain and figures his gain or loss from the sale of the cotton depends on whether he included CCC loans in income in He reports it for as an agricultural program payment on Schedule F, line 4a, but doesn't include it as a taxable amount on line 4b.

Mike reports it for as an agricultural program payment on Schedule F, line 4a, but doesn't include it as a taxable amount on line 4b. Mike has no gain or loss on its sale to the cotton buyer for that amount. Under the CRP, if you own or operate highly erodible or other specified cropland, you may enter into a long-term contract with the USDA, agreeing to convert to a less intensive use of that cropland.

You must include the annual rental payments and any one-time incentive payment you receive under the program on the appropriate lines of Schedule F. Cost-share payments you receive may qualify for the cost-sharing exclusion. CRP payments are reported to you on Form G. Individuals who are receiving social security retirement or disability benefits may exclude CRP payments when calculating self-employment tax.

You must include in income any crop insurance proceeds you receive as the result of physical crop damage or reduction of crop revenue, or both. You generally include them in the year you receive them. Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops, because of drought, flood, or any other natural disaster.

You can request income tax withholding from crop disaster payments you receive from the federal government. You can postpone reporting some or all crop insurance proceeds as income until the year following the year the physical damage occurred if you meet all the following conditions.

You receive the crop insurance proceeds in the same tax year the crops are damaged. You can show that under your normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred. Deferral isn't permitted for proceeds received from revenue insurance policies.

To postpone reporting some or all crop insurance proceeds received in , report the amount you received on Schedule F, line 6a, but don't include it as a taxable amount on line 6b. Check the box on line 6c and attach a statement to your tax return. The statement must include your name and address and contain the following information. A statement that you're making an election under section d and Regulations section 1.

A statement that under your normal business practice you would have included income from some or all of the destroyed or damaged crops in gross income for a tax year following the year the crops were destroyed or damaged.

The cause of the physical destruction or damage and the date or dates it occurred. The total payments you received from insurance carriers, itemized for each specific crop, and the date you received each payment. One election covers all crops representing a single trade or business.

If you have more than one farming business, make a separate election for each one. For example, if you operate two separate farms on which you grow different crops and you keep separate books for each farm, you should make two separate elections to postpone reporting insurance proceeds you receive for crops grown on each of your farms.

An election is binding for the year unless the IRS approves your request to change it. To request IRS approval to change your election, write to the IRS at the following address, giving your name, address, identification number, the year you made the election, and your reasons for wanting to change it. The Disaster Assistance Act of authorizes programs to provide feed assistance, reimbursement payments, and other benefits to qualifying livestock producers if the Secretary of Agriculture determines that, because of a natural disaster, a livestock emergency exists.

These programs include partial reimbursement for the cost of purchased feed and for certain transportation expenses. They also include the donation or sale at a below-market price of feed owned by the CCC. The difference between the market value and the price you paid for feed you buy at below-market prices, and. You must include these benefits in income in the year you receive them.

You can't postpone reporting them under the rules explained earlier for weather-related sales of livestock or crop insurance proceeds. Report the benefits on Schedule F, Part I, as agricultural program payments. You can usually take a current deduction for the same amount as a feed expense.

You can exclude from your income part or all of a payment you receive under certain federal or state cost-sharing conservation, reclamation, and restoration programs. However, see Effects of the exclusion, later.

A payment is any economic benefit you get as a result of an improvement. However, this exclusion applies only to that part of a payment that meets all three of the following tests. It was for a capital expense. You can't exclude any part of a payment for an expense you can deduct in the year you pay or incur it. You must include the payment for a deductible expense in income, and you can take any offsetting deduction.

See chapter 5 for information on deducting soil and water conservation expenses. It doesn't substantially increase your annual income from the property for which it's made. An increase in annual income is substantial if it's more than the greater of the following amounts. The Secretary of Agriculture certified that the payment was primarily made for conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife.

If the three tests listed above are met, you can exclude part or all of the payments from the following programs. The rural abandoned mine program authorized by the Surface Mining Control and Reclamation Act of The emergency conservation measures program authorized by title IV of the Agricultural Credit Act of The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act. Any program of a state, possession of the United States, a political subdivision of any of these, or of the District of Columbia, under which payments are made to individuals primarily for conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife.

Several state programs have been approved. If the three tests listed earlier are met, you can exclude part or all of the payments you receive under the following programs for improvements made in connection with a watershed. The gross income you realize upon getting an improvement under these cost-sharing programs is the value of the improvement reduced by the sum of the excludable portion and your share of the cost of the improvement if any.

You determine the value of the improvement by multiplying its fair market value defined in chapter 6 by a fraction. The numerator of the fraction is the total cost of the improvement all amounts paid either by you or by the government for the improvement reduced by the sum of the following items. Any part of a government payment under a program listed earlier that the Secretary of Agriculture hasn't certified as primarily for conservation.

The excludable portion is the present fair market value of the right to receive annual income from the affected acreage of the greater of the following amounts. The prior average annual income is the average of the gross receipts from the affected acreage for the last 3 tax years before the tax year in which you started to install the improvement. The calculation of present fair market value of the right to receive annual income is too complex to discuss in this publication.

You may need to consult your tax advisor for assistance. When you figure the basis of property you acquire or improve using cost-sharing payments excluded from income, subtract the excluded payments from your capital costs. Any payment excluded from income isn't part of your basis. In addition, you can't take depreciation, amortization, or depletion deductions for the part of the cost of the property for which you receive cost-sharing payments you exclude from income.

Attach a statement to your tax return or amended return for the tax year you receive the last government payment for the improvement. The statement must include the following information. Report the total cost-sharing payments you receive on Schedule F, line 4a, and the taxable amount on line 4b. If you dispose of the property within 20 years after you received the excluded payments, you must treat as ordinary income part or all of the cost-sharing payments you excluded.

You must report the recapture on Form See Section property under Other Gains in chapter 9. You can elect not to exclude all or part of any payments you receive under these programs. If you make this election for all of these payments, none of the above restrictions and rules apply. You must make this election by the due date, including extensions, for filing your return.

Write "Filed pursuant to section Include in income the value of fertilizer or lime you receive under a government program. How to claim the offsetting deduction is explained under Fertilizer and Lime in chapter 4. If government payments are based on improvements, such as a pollution control facility, you must include them in income. You must also capitalize the full cost of the improvement. Since you have included the payments in income, they don't reduce your basis.

However, see Cost-Sharing Exclusion Improvements , earlier, for additional information. It reports a program payment intended for more than one person as having been paid to the person whose identification number is on record for that payment payee of record. If you, as the payee of record, receive a program payment belonging to someone else, such as your landlord, the amount belonging to the other person is a nominee distribution. You should also give this information to the recipient.

You can avoid the inconvenience of unnecessary inquiries about the identity of the recipient if you file this form. Report the total amount reported to you as the payee of record on Schedule F. However, don't report as a taxable amount any amount belonging to someone else. See chapter 16 for information about ordering Form G. If you buy farm supplies through a cooperative, you may receive income from the cooperative in the form of patronage dividends refunds.

If you sell your farm products through a cooperative, you may receive either patronage dividends or a per-unit retain certificate, explained later, from the cooperative. Form PATR may also show an alternative minimum tax adjustment that you must include on Form if you're required to file the form.

For information on the alternative minimum tax, see the Instructions for Form You generally report patronage dividends as income on Schedule F for the tax year you receive them. They include the following items. Money paid as a patronage dividend, including cash advances received for example, from a marketing cooperative.

If you can't determine what the dividend is for, report it as income on Schedule F, lines 3a and 3b. If you receive a qualified written notice of allocation as part of a patronage dividend, you must generally include its stated dollar value in your income on Schedule F in the year you receive it.

The notice must be redeemable in cash for at least 90 days after it's issued, and you must have received a written notice of your right of redemption at the same time as the written notice of allocation. You must have agreed to include the stated dollar value in income in the year you receive the notice by doing one of the following.

Getting or keeping membership in the cooperative after it adopted a bylaw providing that membership constitutes agreement. The cooperative must notify you in writing of this bylaw and give you a copy. Endorsing and cashing a qualified check paid as part of the same patronage dividend. You must cash the check by the 90th day after the close of the payment period for the cooperative's tax year for which the patronage dividend was paid.

A qualified check is any instrument that's redeemable in money and meets both of the following requirements. It's part of a patronage dividend that also includes a qualified written notice of allocation for which you met condition 2c above. It's imprinted with a statement that endorsing and cashing it constitutes the payee's consent to include in income the stated dollar value of any written notices of allocation paid as part of the same patronage dividend.

You can deduct on Schedule F, Part II, any loss incurred on the redemption of a qualified written notice of allocation you received in the ordinary course of your farming business. The loss is the difference between the stated dollar amount of the qualified written notice you included in income and the amount you received when you redeemed it.

Your basis in the notice is zero. You must include in income for the tax year of disposition any amount you receive from its sale, redemption, or other disposition. Report that amount, up to the stated dollar value of the notice, on Schedule F.

However, don't include that amount in your income if the notice resulted from buying or selling capital assets or depreciable property or from buying personal items, as explained in the following discussions. If the amount you receive is more than the stated dollar value of the notice, report the excess as the type of income it represents.

For example, if it represents interest income, report it on your return as interest. Don't include in income patronage dividends from buying capital assets or depreciable property used in your business. You must, however, reduce the basis of these assets by the dividends. This reduction is taken into account as of the first day of the tax year in which the dividends are received.

If the dividends are more than your unrecovered basis, reduce the unrecovered basis to zero and include the difference on Schedule F for the tax year you receive them. This rule and the exceptions explained below also apply to amounts you receive from the sale, redemption, or other disposition of a nonqualified notice of allocation that resulted from buying or selling capital assets or depreciable property.

On July 1, , Mr. Brown files his return on a calendar year basis. On July 2, , the cooperative association paid Mr. Brown adjusts the basis of the machine and figures his depreciation deduction for and later years as follows. If the dividends are for buying or selling capital assets or depreciable property you didn't own at any time during the year you received the dividends, you must include them on Schedule F, unless one of the following rules applies.

If the dividends relate to a capital asset you held for more than 1 year for which a loss was or would have been deductible, treat them as gain from the sale or exchange of a capital asset held for more than 1 year. If the dividends relate to a capital asset for which a loss wasn't or wouldn't have been deductible, don't report them as income ordinary or capital gain. If the dividends are for selling capital assets or depreciable property during the year you received the dividends, treat them as an additional amount received on the sale.

Because you can't deduct the cost of personal, living, or family items, such as supplies, equipment, or services not related to the production of farm income, you can omit from the taxable amount of patronage dividends on Schedule F any dividends from buying those items and you must reduce the cost or other basis of those items by the amount of the dividends.

This rule also applies to amounts you receive from the sale, redemption, or other disposition of a nonqualified written notice of allocation resulting from these purchases. A per-unit retain certificate is any written notice that shows the stated dollar amount of a per-unit retain allocation made to you by the cooperative. A per-unit retain allocation is an amount paid to patrons for products sold for them that's fixed without regard to the net earnings of the cooperative.

These allocations can be paid in money, other property, or qualified certificates. Per-unit retain certificates issued by a cooperative generally receive the same tax treatment as patronage dividends, discussed earlier.

Qualified per-unit retain certificates are those issued to patrons who have agreed to include the stated dollar amount of these certificates in income in the year of receipt. The agreement may be made in writing or by getting or keeping membership in a cooperative whose bylaws or charter states that membership constitutes agreement.

If you receive qualified per-unit retain certificates, include the stated dollar amount of the certificates in income on Schedule F, for the tax year you receive them. Don't include the stated dollar value of a nonqualified per-unit retain certificate in income when you receive it. Your basis in the certificate is zero. You must include in income any amount you receive from its sale, redemption, or other disposition. Report the amount you receive from the disposition as ordinary income on Schedule F, lines 3a and 3b, for the tax year of disposition.

This section explains the general rule for including canceled debt in income and the exceptions to the general rule. For more information on canceled debt, see Pub. See Announcement Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in gross income for tax purposes.

Report the canceled amount on Schedule F if you incurred the debt in your farming business. If the debt is a nonbusiness debt, report the canceled amount as "Other income" on Schedule 1 Form , line 8. Special rules apply to C and S corporations and partnerships. See section i , Regulations sections 1. The amount of debt canceled is shown in box 2.

The following discussion covers some exceptions to the general rule for canceled debt. These exceptions apply before the exclusions discussed below. If your purchase of property was financed by the seller and the seller reduces the amount of the debt at a time when you aren't insolvent and the reduction doesn't occur in a chapter 11 bankruptcy case, the amount of the debt reduction will be treated as a reduction in the purchase price of the property.

Reduce your basis in the property by the amount of the reduction in the debt. The rules that apply to bankruptcy and insolvency are explained below under Exclusions. You don't realize income from a canceled debt to the extent the payment of the debt would have been a deductible expense. This exception applies before the price reduction exception discussed above and the bankruptcy and insolvency exclusions discussed next.

You get accounting services for your farm on credit. Later, you have trouble paying your farm debts, but you aren't bankrupt or insolvent. Your accountant forgives part of the amount you owe for the accounting services.

How you treat the canceled debt depends on your method of accounting. Cash method—You don't include the canceled debt in income because payment of the debt would have been deductible as a business expense. Accrual method—You include the canceled debt in income because the expense was deductible when you incurred the debt.

The canceled debt is a qualified real property business debt in the case of a taxpayer other than a C corporation. See chapter 5 of Pub.

FOREX BANK OF AMERICA

Income reported on Schedule F doesn't include gains or losses from sales or other dispositions of the following farm assets. Gains and losses from most dispositions of farm assets are discussed in chapters 8 and 9. Gains and losses from casualties, thefts, and condemnations are discussed in chapter Table shows where to report the sale of farm products on your tax return. Amounts received from the sales of products you raised on your farm for sale or bought for resale , such as livestock, produce, or grains, are reported on Schedule F.

This includes money and the fair market value of any property or services you receive. When you sell farm products bought for resale, your profit or loss is the difference between your selling price money plus the fair market value of any property and your basis in the item usually the cost.

See chapter 6 for information on the basis of assets. You generally report these amounts on Schedule F for the year you receive payment. Sales of livestock held for draft, breeding, sport, or dairy purposes may result in ordinary or capital gains or losses, depending on the circumstances.

In either case, you should not report these sales on Schedule F. Instead, report these sales on Form Animals that you don't hold primarily for sale are considered business assets of your farm. If your agent sells your farm products, you have constructive receipt of the income when your agent receives payment and you must include the net proceeds from the sale in gross income for the year the agent receives payment. This applies even if your agent pays you in a later year.

For a discussion on constructive receipt of income, see Cash Method under Accounting Methods in chapter 2. If you sell or exchange more livestock, including poultry, than you normally would in a year because of a drought, flood, or other weather-related condition, you may be able to postpone reporting the gain from the additional animals until the next year.

You must meet all the following conditions to qualify. You can show that, under your usual business practices, you wouldn't have sold or exchanged the additional animals this year except for the weather-related condition. The weather-related condition caused an area to be designated as eligible for assistance by the federal government. Disaster assistance and emergency relief for individuals and businesses. Special tax law provisions may help taxpayers and businesses recover financially from the impact of a disaster, especially when the federal government declares their location to be a major disaster area.

Get the latest tax relief guidance in disaster situations at IRS. Sales or exchanges made before an area became eligible for federal assistance qualify if the weather-related condition that caused the sale or exchange also caused the area to be designated as eligible for federal assistance. The designation can be made by the President, the Department of Agriculture or any of its agencies , or by other federal departments or agencies.

A weather-related sale or exchange of livestock other than poultry held for draft, breeding, or dairy purposes may be an involuntary conversion. See Other Involuntary Conversions in chapter You must determine the number of animals you would have sold had you followed your usual business practice in the absence of the weather-related condition.

Do this by considering all the facts and circumstances, but don't take into account your sales in any earlier year for which you postponed the gain. If you haven't yet established a usual business practice, rely on the usual business practices of similarly situated farmers in your general region.

The livestock doesn't have to be raised or sold in an area affected by a weather-related condition for the postponement to apply. However, the sale must occur solely because of a weather-related condition that affected the water, grazing, or other requirements of the livestock.

This requirement generally won't be met if the costs of feed, water, or other requirements of the livestock affected by the weather-related condition aren't substantial in relation to the total costs of holding the livestock. You must figure the amount to be postponed separately for each generic class of animals—for example, hogs, sheep, and cattle.

Follow these steps to figure the amount of gain to be postponed for each class of animals. Divide the total income realized from the sale of all livestock in the class during the tax year by the total number of such livestock sold. For this purpose, don't treat any postponed gain from the previous year as income received from the sale of livestock. Multiply the result in 1 by the excess number of such livestock sold solely because of weather-related conditions.

You're a calendar year taxpayer and you normally wean beef calves in the fall and feed them through the winter, selling in January or February. As a result of drought, you decide you don't have enough feed for all of your calves, so you sell 35 head in the fall at weaning in addition to the calves sold in January. As a result, you sold head during On August 10, , as a result of drought, the affected area was declared a disaster area eligible for federal assistance. To postpone gain, attach a statement to your tax return for the year of the sale.

The statement must include your name and address and give the following information for each class of livestock for which you're postponing gain. Evidence of the weather-related conditions that forced the early sale or exchange of the livestock and the date, if known, on which an area was designated as eligible for assistance by the federal government because of weather-related conditions. A statement explaining the relationship of the area affected by the weather-related condition to your early sale or exchange of the livestock.

The number of animals you would have sold in the tax year had you followed your normal business practice in the absence of weather-related conditions. The total number of animals sold and the number sold because of weather-related conditions during the tax year. A computation, as described above, of the income to be postponed for each class of livestock. Generally, you must file the statement and the return by the due date of the return, including extensions. However, for sales or exchanges treated as an involuntary conversion from weather-related sales of livestock in an area eligible for federal assistance discussed in chapter 11 , you can file this statement at any time during the replacement period.

For other sales or exchanges, if you timely filed your return for the year without postponing gain, you can still postpone gain by filing an amended return within 6 months of the due date of the return excluding extensions. Attach the statement to the amended return and write "Filed pursuant to section File the amended return at the same address you filed the original return.

Once you have filed the statement, you can cancel your postponement of gain only with the approval of the IRS. The rent you receive for the use of your farmland by another person or entity is generally rental income, not farm income. However, the rent is farm income if:. Your arrangement with your tenant provides that the you will materially participate in the production or management of production of the farm products on the land, and.

If you pasture someone else's livestock and take care of them for a fee, the income is from your farming business. You must enter it as "Other Income" on Schedule F. If you simply rent your pasture or other farm real estate for a flat cash amount without providing services, report the income as rent on Schedule E Form , Part I. You must include rent you receive in the form of crop shares in income in the year you convert the shares to money or the equivalent of money.

It doesn't matter whether you use the cash method of accounting or an accrual method of accounting. If you receive rent in the form of crop shares or livestock, the rental income is included in self-employment income if:. Report this income on Form and carry the net income or loss to Schedule E Form , page 2, if:.

Crop shares you receive as a landlord and feed to your livestock are considered converted to money when fed to the livestock. You must include the fair market value of the crop shares in income at that time. You're entitled to a business expense deduction for the livestock feed in the same amount and at the same time you include the fair market value of the crop share as rental income.

Although these two transactions cancel each other for figuring adjusted gross income on Form or SR, they may be necessary to figure your self-employment tax. Crop shares you receive as a landlord and give to others are considered converted to money when you make the gift. You must report the fair market value of the crop share as income, even though someone else receives payment for the crop share.

This applies even if the gift is made to a qualified charitable organization. A tenant farmed part of your land under a crop-share arrangement. The tenant harvested and delivered the crop in your name to an elevator company. Before selling any of the crop, you instructed the elevator company to cancel your warehouse receipt and make out new warehouse receipts in equal amounts of the crop in the names of your children.

They sell their crop shares in the following year and the elevator company makes payments directly to your children. In this situation, you're considered to have received rental income and then made a gift of that income. You must include the fair market value of the crop shares in your income for the tax year you gave the crop shares to your children. If you're involved in a rental or crop-share lease arrangement, any loss from these activities may be subject to the limits under the passive loss rules.

You must include in income most government payments, such as those for approved conservation practices, livestock indemnity payments, or livestock forage disaster payments whether you receive them in cash, materials, services, or commodity certificates.

However, you can exclude from income some payments you receive under certain cost-sharing conservation programs. See Cost-Sharing Exclusion Improvements , later. Report the agricultural program payment on the appropriate line of Schedule F, Part I. Report the full amount even if you return a government check for cancellation, refund any of the payment you receive, or the government collects all or part of the payment from you by reducing the amount of some other payment or Commodity Credit Corporation CCC loan.

However, you can deduct the amount you refund or return or that reduces some other payment or loan to you. Generally, you don't report loans you receive as income. However, if you pledge part or all of your production to secure a CCC loan, you can treat the loan as if it were a sale of the crop and report the loan proceeds as income in the year you receive them.

Once you report a CCC loan as income for the year received, you must generally report all CCC loans in that year and later years in the same way. However, you can obtain for your tax year an automatic consent to change your method of accounting for loans received from the CCC, from including the loan amount in gross income for the tax year in which the loan is received to treating the loan amount as a loan.

Revenue Procedure , I. You can request income tax withholding from CCC loan payments you receive. Use Form W-4V. See chapter 16 for information about ordering the form. To elect to report a CCC loan as income, include the loan proceeds as income on Schedule F for the year you receive it. Attach a statement to your return showing the details of the loan.

You must file the statement and the return by the due date of the return, including extensions. If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return excluding extensions. When you make this election, the amount you report as income becomes your basis in the commodity.

If you later repay the loan, redeem the pledged commodity, and sell it, you report as income at the time of sale the sale proceeds minus your basis in the commodity. If the sale proceeds are less than your basis in the commodity, you can report the difference as a loss on Schedule F.

If you forfeit the pledged crops to the CCC in full payment of the loan, the forfeiture is treated for tax purposes as a sale of the crops. If you didn't report the loan proceeds as income for the year you received them, you must include them in your income for the year of the forfeiture. The amount of any CCC loan outstanding when you forfeited your commodity should also be indicated on the form.

Under the CCC nonrecourse marketing assistance loan program, your repayment amount for a loan secured by your pledge of an eligible commodity is generally based on the lower of the loan rate or the prevailing world market price for the commodity on the date of repayment.

If you repay the loan when the world price is lower, the difference between that repayment amount and the original loan amount is market gain. Whether you use cash or CCC certificates to repay the loan, you will receive a Form G showing the market gain you realized.

Market gain should be reported as follows. However, reduce adjust the basis of the commodity for the amount of the market gain. Mike Green is a cotton farmer. He uses the cash method of accounting and files his tax return on a calendar year basis. He has deducted all expenses incurred in producing the cotton and has a zero basis in the commodity. How he reports this market gain and figures his gain or loss from the sale of the cotton depends on whether he included CCC loans in income in He reports it for as an agricultural program payment on Schedule F, line 4a, but doesn't include it as a taxable amount on line 4b.

Mike reports it for as an agricultural program payment on Schedule F, line 4a, but doesn't include it as a taxable amount on line 4b. Mike has no gain or loss on its sale to the cotton buyer for that amount. Under the CRP, if you own or operate highly erodible or other specified cropland, you may enter into a long-term contract with the USDA, agreeing to convert to a less intensive use of that cropland.

You must include the annual rental payments and any one-time incentive payment you receive under the program on the appropriate lines of Schedule F. Cost-share payments you receive may qualify for the cost-sharing exclusion. CRP payments are reported to you on Form G. Individuals who are receiving social security retirement or disability benefits may exclude CRP payments when calculating self-employment tax.

You must include in income any crop insurance proceeds you receive as the result of physical crop damage or reduction of crop revenue, or both. You generally include them in the year you receive them. Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops, because of drought, flood, or any other natural disaster.

You can request income tax withholding from crop disaster payments you receive from the federal government. You can postpone reporting some or all crop insurance proceeds as income until the year following the year the physical damage occurred if you meet all the following conditions.

You receive the crop insurance proceeds in the same tax year the crops are damaged. You can show that under your normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred. Deferral isn't permitted for proceeds received from revenue insurance policies. To postpone reporting some or all crop insurance proceeds received in , report the amount you received on Schedule F, line 6a, but don't include it as a taxable amount on line 6b.

Check the box on line 6c and attach a statement to your tax return. The statement must include your name and address and contain the following information. A statement that you're making an election under section d and Regulations section 1. A statement that under your normal business practice you would have included income from some or all of the destroyed or damaged crops in gross income for a tax year following the year the crops were destroyed or damaged.

The cause of the physical destruction or damage and the date or dates it occurred. The total payments you received from insurance carriers, itemized for each specific crop, and the date you received each payment. One election covers all crops representing a single trade or business. If you have more than one farming business, make a separate election for each one.

For example, if you operate two separate farms on which you grow different crops and you keep separate books for each farm, you should make two separate elections to postpone reporting insurance proceeds you receive for crops grown on each of your farms.

An election is binding for the year unless the IRS approves your request to change it. To request IRS approval to change your election, write to the IRS at the following address, giving your name, address, identification number, the year you made the election, and your reasons for wanting to change it. The Disaster Assistance Act of authorizes programs to provide feed assistance, reimbursement payments, and other benefits to qualifying livestock producers if the Secretary of Agriculture determines that, because of a natural disaster, a livestock emergency exists.

These programs include partial reimbursement for the cost of purchased feed and for certain transportation expenses. They also include the donation or sale at a below-market price of feed owned by the CCC. The difference between the market value and the price you paid for feed you buy at below-market prices, and. You must include these benefits in income in the year you receive them. You can't postpone reporting them under the rules explained earlier for weather-related sales of livestock or crop insurance proceeds.

Report the benefits on Schedule F, Part I, as agricultural program payments. You can usually take a current deduction for the same amount as a feed expense. You can exclude from your income part or all of a payment you receive under certain federal or state cost-sharing conservation, reclamation, and restoration programs.

However, see Effects of the exclusion, later. A payment is any economic benefit you get as a result of an improvement. However, this exclusion applies only to that part of a payment that meets all three of the following tests. It was for a capital expense. You can't exclude any part of a payment for an expense you can deduct in the year you pay or incur it.

You must include the payment for a deductible expense in income, and you can take any offsetting deduction. See chapter 5 for information on deducting soil and water conservation expenses. It doesn't substantially increase your annual income from the property for which it's made.

An increase in annual income is substantial if it's more than the greater of the following amounts. The Secretary of Agriculture certified that the payment was primarily made for conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife.

If the three tests listed above are met, you can exclude part or all of the payments from the following programs. The rural abandoned mine program authorized by the Surface Mining Control and Reclamation Act of The emergency conservation measures program authorized by title IV of the Agricultural Credit Act of The agricultural conservation program authorized by the Soil Conservation and Domestic Allotment Act.

Any program of a state, possession of the United States, a political subdivision of any of these, or of the District of Columbia, under which payments are made to individuals primarily for conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife.

Several state programs have been approved. If the three tests listed earlier are met, you can exclude part or all of the payments you receive under the following programs for improvements made in connection with a watershed. The gross income you realize upon getting an improvement under these cost-sharing programs is the value of the improvement reduced by the sum of the excludable portion and your share of the cost of the improvement if any.

You determine the value of the improvement by multiplying its fair market value defined in chapter 6 by a fraction. The numerator of the fraction is the total cost of the improvement all amounts paid either by you or by the government for the improvement reduced by the sum of the following items. Any part of a government payment under a program listed earlier that the Secretary of Agriculture hasn't certified as primarily for conservation.

The excludable portion is the present fair market value of the right to receive annual income from the affected acreage of the greater of the following amounts. The prior average annual income is the average of the gross receipts from the affected acreage for the last 3 tax years before the tax year in which you started to install the improvement. The calculation of present fair market value of the right to receive annual income is too complex to discuss in this publication.

You may need to consult your tax advisor for assistance. When you figure the basis of property you acquire or improve using cost-sharing payments excluded from income, subtract the excluded payments from your capital costs. Any payment excluded from income isn't part of your basis. In addition, you can't take depreciation, amortization, or depletion deductions for the part of the cost of the property for which you receive cost-sharing payments you exclude from income.

Attach a statement to your tax return or amended return for the tax year you receive the last government payment for the improvement. The statement must include the following information. Report the total cost-sharing payments you receive on Schedule F, line 4a, and the taxable amount on line 4b.

If you dispose of the property within 20 years after you received the excluded payments, you must treat as ordinary income part or all of the cost-sharing payments you excluded. You must report the recapture on Form See Section property under Other Gains in chapter 9. You can elect not to exclude all or part of any payments you receive under these programs.

If you make this election for all of these payments, none of the above restrictions and rules apply. You must make this election by the due date, including extensions, for filing your return. Write "Filed pursuant to section Include in income the value of fertilizer or lime you receive under a government program. How to claim the offsetting deduction is explained under Fertilizer and Lime in chapter 4.

If government payments are based on improvements, such as a pollution control facility, you must include them in income. You must also capitalize the full cost of the improvement. Since you have included the payments in income, they don't reduce your basis.

However, see Cost-Sharing Exclusion Improvements , earlier, for additional information. It reports a program payment intended for more than one person as having been paid to the person whose identification number is on record for that payment payee of record.

If you, as the payee of record, receive a program payment belonging to someone else, such as your landlord, the amount belonging to the other person is a nominee distribution. You should also give this information to the recipient. You can avoid the inconvenience of unnecessary inquiries about the identity of the recipient if you file this form.

Report the total amount reported to you as the payee of record on Schedule F. However, don't report as a taxable amount any amount belonging to someone else. See chapter 16 for information about ordering Form G. If you buy farm supplies through a cooperative, you may receive income from the cooperative in the form of patronage dividends refunds.

If you sell your farm products through a cooperative, you may receive either patronage dividends or a per-unit retain certificate, explained later, from the cooperative. Form PATR may also show an alternative minimum tax adjustment that you must include on Form if you're required to file the form.

For information on the alternative minimum tax, see the Instructions for Form You generally report patronage dividends as income on Schedule F for the tax year you receive them. They include the following items.

Money paid as a patronage dividend, including cash advances received for example, from a marketing cooperative. If you can't determine what the dividend is for, report it as income on Schedule F, lines 3a and 3b. If you receive a qualified written notice of allocation as part of a patronage dividend, you must generally include its stated dollar value in your income on Schedule F in the year you receive it.

The notice must be redeemable in cash for at least 90 days after it's issued, and you must have received a written notice of your right of redemption at the same time as the written notice of allocation. You must have agreed to include the stated dollar value in income in the year you receive the notice by doing one of the following. Getting or keeping membership in the cooperative after it adopted a bylaw providing that membership constitutes agreement.

The cooperative must notify you in writing of this bylaw and give you a copy. Endorsing and cashing a qualified check paid as part of the same patronage dividend. You must cash the check by the 90th day after the close of the payment period for the cooperative's tax year for which the patronage dividend was paid.

A qualified check is any instrument that's redeemable in money and meets both of the following requirements. It's part of a patronage dividend that also includes a qualified written notice of allocation for which you met condition 2c above. It's imprinted with a statement that endorsing and cashing it constitutes the payee's consent to include in income the stated dollar value of any written notices of allocation paid as part of the same patronage dividend.

You can deduct on Schedule F, Part II, any loss incurred on the redemption of a qualified written notice of allocation you received in the ordinary course of your farming business. The loss is the difference between the stated dollar amount of the qualified written notice you included in income and the amount you received when you redeemed it.

Your basis in the notice is zero. You must include in income for the tax year of disposition any amount you receive from its sale, redemption, or other disposition. Report that amount, up to the stated dollar value of the notice, on Schedule F. However, don't include that amount in your income if the notice resulted from buying or selling capital assets or depreciable property or from buying personal items, as explained in the following discussions.

If the amount you receive is more than the stated dollar value of the notice, report the excess as the type of income it represents. For example, if it represents interest income, report it on your return as interest. Don't include in income patronage dividends from buying capital assets or depreciable property used in your business.

You must, however, reduce the basis of these assets by the dividends. This reduction is taken into account as of the first day of the tax year in which the dividends are received. If the dividends are more than your unrecovered basis, reduce the unrecovered basis to zero and include the difference on Schedule F for the tax year you receive them.

This rule and the exceptions explained below also apply to amounts you receive from the sale, redemption, or other disposition of a nonqualified notice of allocation that resulted from buying or selling capital assets or depreciable property. On July 1, , Mr. Brown files his return on a calendar year basis. On July 2, , the cooperative association paid Mr. Brown adjusts the basis of the machine and figures his depreciation deduction for and later years as follows. If the dividends are for buying or selling capital assets or depreciable property you didn't own at any time during the year you received the dividends, you must include them on Schedule F, unless one of the following rules applies.

If the dividends relate to a capital asset you held for more than 1 year for which a loss was or would have been deductible, treat them as gain from the sale or exchange of a capital asset held for more than 1 year. If the dividends relate to a capital asset for which a loss wasn't or wouldn't have been deductible, don't report them as income ordinary or capital gain. If the dividends are for selling capital assets or depreciable property during the year you received the dividends, treat them as an additional amount received on the sale.

Because you can't deduct the cost of personal, living, or family items, such as supplies, equipment, or services not related to the production of farm income, you can omit from the taxable amount of patronage dividends on Schedule F any dividends from buying those items and you must reduce the cost or other basis of those items by the amount of the dividends.

This rule also applies to amounts you receive from the sale, redemption, or other disposition of a nonqualified written notice of allocation resulting from these purchases. A per-unit retain certificate is any written notice that shows the stated dollar amount of a per-unit retain allocation made to you by the cooperative. A per-unit retain allocation is an amount paid to patrons for products sold for them that's fixed without regard to the net earnings of the cooperative.

These allocations can be paid in money, other property, or qualified certificates. Per-unit retain certificates issued by a cooperative generally receive the same tax treatment as patronage dividends, discussed earlier. Qualified per-unit retain certificates are those issued to patrons who have agreed to include the stated dollar amount of these certificates in income in the year of receipt.

The agreement may be made in writing or by getting or keeping membership in a cooperative whose bylaws or charter states that membership constitutes agreement. If you receive qualified per-unit retain certificates, include the stated dollar amount of the certificates in income on Schedule F, for the tax year you receive them.

Don't include the stated dollar value of a nonqualified per-unit retain certificate in income when you receive it. Your basis in the certificate is zero. You must include in income any amount you receive from its sale, redemption, or other disposition. Report the amount you receive from the disposition as ordinary income on Schedule F, lines 3a and 3b, for the tax year of disposition. This section explains the general rule for including canceled debt in income and the exceptions to the general rule.

For more information on canceled debt, see Pub. See Announcement Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in gross income for tax purposes. Report the canceled amount on Schedule F if you incurred the debt in your farming business. If the debt is a nonbusiness debt, report the canceled amount as "Other income" on Schedule 1 Form , line 8.

Special rules apply to C and S corporations and partnerships. See section i , Regulations sections 1. The amount of debt canceled is shown in box 2. The following discussion covers some exceptions to the general rule for canceled debt. These exceptions apply before the exclusions discussed below. If your purchase of property was financed by the seller and the seller reduces the amount of the debt at a time when you aren't insolvent and the reduction doesn't occur in a chapter 11 bankruptcy case, the amount of the debt reduction will be treated as a reduction in the purchase price of the property.

Reduce your basis in the property by the amount of the reduction in the debt. The rules that apply to bankruptcy and insolvency are explained below under Exclusions. You don't realize income from a canceled debt to the extent the payment of the debt would have been a deductible expense.

This exception applies before the price reduction exception discussed above and the bankruptcy and insolvency exclusions discussed next. You get accounting services for your farm on credit. Later, you have trouble paying your farm debts, but you aren't bankrupt or insolvent.

Your accountant forgives part of the amount you owe for the accounting services. How you treat the canceled debt depends on your method of accounting. Cash method—You don't include the canceled debt in income because payment of the debt would have been deductible as a business expense.

Accrual method—You include the canceled debt in income because the expense was deductible when you incurred the debt. The canceled debt is a qualified real property business debt in the case of a taxpayer other than a C corporation. See chapter 5 of Pub. If a canceled debt is excluded from income because it takes place in a bankruptcy case, the exclusions in situations 2 , 3 , 4 , and 5 don't apply.

If a canceled debt is excluded from income because it takes place when you're insolvent, the exclusions in situations 3 and 4 don't apply to the extent you're insolvent. See Form , later, for information on how to claim an exclusion for a canceled debt. For this discussion, debt includes any debt for which you're liable or that attaches to property you hold. You can exclude a canceled debt from income if you're bankrupt or to the extent you're insolvent.

A bankruptcy case is a case under title 11 of the U. Code if you're under the jurisdiction of the court and the cancellation of the debt is granted by the court or is the result of a plan approved by the court. Don't include debt canceled in a bankruptcy case in your income in the year it's canceled. Instead, you must use the amount canceled to reduce your tax attributes, explained below under Reduction of tax attributes.

You're insolvent to the extent your liabilities are more than the fair market value of your assets immediately before the cancellation of debt. You can exclude canceled debt from gross income up to the amount by which you're insolvent. If the canceled debt is more than this amount and the debt qualifies, you can apply the rules for qualified farm debt or qualified real property business debt to the difference.

Otherwise, you include the difference in gross income. Use the amount excluded because of insolvency to reduce any tax attributes, as explained below under Reduction of tax attributes. You must reduce the tax attributes under the insolvency rules before applying the rules for qualified farm debt or for qualified real property business debt.

You can exclude this amount from income. If not, you must include it in income. If you exclude canceled debt from income in a bankruptcy case or during insolvency, you must use the excluded debt to reduce certain tax attributes. You must use the excluded canceled debt to reduce the following tax attributes in the order listed unless you elect to reduce the basis of depreciable property first, as explained later. Net operating loss NOL.

General business credit carryover. Reduce the credit carryover to or from the tax year of the debt cancellation. Minimum tax credit. Reduce the minimum tax credit available at the beginning of the tax year following the tax year of the debt cancellation. Capital loss.

Reduce any net capital loss for the tax year of the debt cancellation, and then any capital loss carryover to that year. Reduce the capital loss or loss carryover one dollar for each dollar of excluded canceled debt. Reduce the basis of the property you hold at the beginning of the tax year following the tax year of the debt cancellation in the following order. Real property except inventory used in your trade or business or held for investment that secured the canceled debt.

Personal property except inventory and accounts and notes receivable used in your trade or business or held for investment that secured the canceled debt. Other property except inventory and accounts and notes receivable used in your trade or business or held for investment.

Reduce the basis one dollar for each dollar of excluded canceled debt. However, the reduction can't be more than the total basis of property and the amount of money you hold immediately after the debt cancellation minus your total liabilities immediately after the cancellation. For allocation rules that apply to basis reductions for multiple canceled debts, see Regulations section 1.

Also see Electing to reduce the basis of depreciable property first , later. Passive activity loss and credit carryovers. Reduce the passive activity loss and credit carryovers from the tax year of the debt cancellation. Reduce the loss carryover one dollar for each dollar of excluded canceled debt. Foreign tax credit. Always make the required reductions in tax attributes after figuring your tax for the year of the debt cancellation.

In making the reductions in 1 and 4 earlier, first reduce the loss for the tax year of the debt cancellation. Then reduce any loss carryovers to that year in the order of the tax years from which the carryovers arose, starting with the earliest year. In making the reductions in 2 and 7 earlier, reduce the credit carryovers to the tax year of the debt cancellation in the order in which they are taken into account for that year.

You can elect to apply any portion of the excluded canceled debt first to reduce the basis of depreciable property you hold at the beginning of the tax year following the tax year of the debt cancellation in the following order. Depreciable real property used in your trade or business or held for investment that secured the canceled debt.

Depreciable personal property used in your trade or business or held for investment that secured the canceled debt. Other depreciable property used in your trade or business or held for investment. Real property held as inventory if you elect to treat it as depreciable property on Form The amount you apply can't be more than the total adjusted basis of all the depreciable properties. Depreciable property for this purpose means any property subject to depreciation, but only if a reduction of basis will reduce the depreciation or amortization otherwise allowable for the period immediately following the basis reduction.

You make this reduction before reducing the other tax attributes listed earlier. If the excluded canceled debt is more than the depreciable basis you elect to reduce first, use the difference to reduce the other tax attributes. In figuring the limit on the basis reduction in 5 under Order of reduction , earlier, use the remaining adjusted basis of your properties after making this election.

See Form , later, for information on how to make this election. If you make this election, you can revoke it only with the consent of the IRS. If you reduce the basis of property under these provisions either the election to reduce basis first or the basis reduction without that election and later sell or otherwise dispose of the property at a gain, the part of the gain due to this basis reduction is taxable as ordinary income under the depreciation recapture provisions.

Treat any property that isn't section or section property as section property. For section property, determine the straight-line depreciation adjustments as though there were no basis reduction for debt cancellation. Sections and property and the recapture of gain as ordinary income are explained in chapter 9. For more information on debt cancellation in bankruptcy proceedings or during insolvency, see Pub. You can exclude from income a canceled debt that's qualified farm debt owed to a qualified person.

This exclusion applies only if you were solvent when the debt was canceled or, if you were insolvent, only to the extent the canceled debt is more than the amount by which you were insolvent. This exclusion doesn't apply to a canceled debt excluded from income because it relates to your principal residence or it takes place in a bankruptcy case. This is a person who is actively and regularly engaged in the business of lending money.

A qualified person includes any federal, state, or local government, or any of their agencies or subdivisions. The USDA is a qualified person. A qualified person doesn't include any of the following. A person from whom you acquired the property or a person related to this person.

A person who receives a fee from your investment in the property or a person related to this person. The amount of canceled qualified farm debt you can exclude from income is limited. It can't be more than the sum of your adjusted tax attributes and the total adjusted basis of the qualified property you hold at the beginning of the tax year following the tax year of the debt cancellation.

Figure this limit after taking into account any reduction of tax attributes because of the exclusion of canceled debt from gross income during insolvency. If the canceled debt is more than this limit, you must include the difference in gross income. Any general business credit carryover to or from the year of the debt cancellation, multiplied by 3. Any minimum tax credit available at the beginning of the tax year following the tax year of the debt cancellation, multiplied by 3. Any net capital loss for the tax year of the debt cancellation and any capital loss carryover to that year.

Any passive activity loss and credit carryovers from the tax year of the debt cancellation. Any credit carryover is multiplied by 3. Any foreign tax credit carryovers to or from the tax year of the debt cancellation, multiplied by 3. This is any property you use or hold for use in your trade or business or for the production of income. If you exclude canceled debt from income under the qualified farm debt rules, you must use the excluded debt to reduce tax attributes.

If you also excluded canceled debt under the insolvency rules, you reduce the amount of the tax attributes remaining after reduction for the exclusion allowed under the insolvency rules. You must generally follow the reduction rules previously explained under Bankruptcy and Insolvency. However, don't follow the rules in 5 under Order of reduction , earlier.

Instead, follow the special rules explained next. You must use special rules to reduce the basis of property for excluded canceled qualified farm debt. Under these special rules, you only reduce the basis of qualified property defined earlier. Reduce it in the following order. Depreciable qualified property. You may elect on Form to treat real property held as inventory as depreciable property. Land that's qualified property and is used or held for use in your farming business. Use Form to show the amounts of canceled debt excluded from income and the reduction of tax attributes in the order listed on the form.

Also use it if you're electing to apply the excluded canceled debt to reduce the basis of depreciable property before reducing tax attributes. You make this election by showing the amount you elect to apply on line 5 of the form. You must file Form with your timely filed income tax return including extensions for the tax year in which the cancellation of debt occurred.

If you timely filed your return for the year without electing to apply the excluded canceled debt to reduce the basis of depreciable property first, you can still make the election by filing an amended return within 6 months of the due date of the return excluding extensions.

For more information, see When To File in the Form instructions. If you're paid for your work in farm products, other property, or services, you must report as income the fair market value of what you receive. The same rule applies if you trade farm products for other farm products, property, or someone else's labor. This is called barter income. For example, if you help a neighbor build a barn and receive a cow for your work, you must report the fair market value of the cow as ordinary income.

Your basis for property you receive in a barter transaction is usually the fair market value that you include in income. If you pay someone with property, see Property for services under Labor Hired in chapter 4. A below-market loan is a loan on which either no interest is charged or interest is charged at a rate below the applicable federal rate.

If you make a below-market loan, you may have to report income from the loan in addition to any stated interest you receive from the borrower. See chapter 1 of Pub. See Hedging in chapter 8 for information on gains and losses from commodity futures and options transactions. Pay you receive for contract work or custom work that you or your hired help perform off your farm for others, or for the use of your property or machines, is income to you whether or not income tax was withheld.

This rule applies whether you receive the pay in cash, services, or merchandise. Report this income on Schedule F. Income you receive for granting easements or rights-of-way on your farm or ranch for flooding land, laying pipelines, constructing electric or telephone lines, etc.

Income you received for granting a temporary construction easement is rental income. Only a specific part of your farmland was affected. You reserved the right to continue farming the surface land after the pipe was laid. Treat the payment for the right-of-way in one of the following ways. If the payment is equal to or more than the basis of the affected part of your land, reduce the basis to zero and the rest, if any, is gain from a sale.

The gain is reported on Form and is treated as section gain if you held the land for more than 1 year. See chapter 9. Easement contracts usually describe the affected land using square feet. Your basis may be figured per acre.

One acre equals 43, square feet. It doesn't affect the basis of your land. Include any credit or refund of federal excise taxes on fuels in your gross income if you deducted the cost of the fuel including excise tax as an expense that reduced your income tax. See chapter 14 for more information about fuel tax credits and refunds.

The federal government, operating through the Bureau of Reclamation, has made irrigation water from certain reclamation and irrigation projects available for agricultural purposes. The excess of the amount required to be paid for water from these projects over the amount you actually paid is an illegal subsidy.

For example, if the amount required to be paid is full cost and you paid less than full cost, the difference is an illegal subsidy and you must include it in income. Report this on Schedule F, line 8. You can't take a deduction for the amount you must include in income. For more information on reclamation and irrigation projects, contact your local Bureau of Reclamation. Report prizes you win on farm livestock or products at contests, exhibitions, fairs, etc.

If you receive a prize in cash, include the full amount in income. If you receive a prize in produce or other property, include the fair market value of the property. You may have an ordinary or capital gain if property you own is sold or exchanged; stolen; destroyed by fire, flood, or other casualty; or condemned by a public authority. In some situations, you can postpone the tax on the gain to a later year.

See chapters 8 through See chapter 7 for information on the section expense deduction and when to recapture that deduction. Both of these amounts are farm income. Use Form , Part IV, to figure how much to include in income.

You must generally include in income a reimbursement, refund, or recovery of an item for which you took a deduction in an earlier year. Include it for the tax year you receive it. However, if any part of the earlier deduction didn't decrease your income tax, you don't have to include that part of the reimbursement, refund, or recovery.

If you remove and sell topsoil, loam, fill dirt, sand, gravel, or other natural deposits from your property, the proceeds are ordinary income. A reasonable allowance for depletion of the natural deposit sold may be claimed as a deduction. See Depletion in chapter 7. Report proceeds from the sale of sod on Schedule F.

A deduction for cost depletion is allowed, but only for the topsoil removed with the sod. If you enter into a legal relationship granting someone else the right to excavate and remove natural deposits from your property, you must determine whether the transaction is a sale or another type of transaction for example, a lease. If you receive a specified sum or an amount fixed without regard to the quantity produced and sold from the deposit and you retain no economic interest in the deposit, your transaction is a sale.

You're considered to retain an economic interest if, under the terms of the legal relationship, you depend on the income derived from extraction of the deposit for a return of your capital investment in the deposit. Your income from the deposit is capital gain if the transaction is a sale. Otherwise, it's ordinary income subject to an allowance for depletion. See chapter 7 for information on depletion and chapter 8 for the tax treatment of capital gains. Timber sales, including sales of logs, firewood, and pulpwood, are discussed in chapter 8.

Tree farmers, in the business of tree farming, may use section a to capture favorable income tax treatment of timber sales and then report the actual cash sale of timber on Schedule F. Section A defines sale of trees as farm income under the special use valuation for estate tax purposes. However, land owners who make frequent sales for example, two to three within 5 years, per case law may use Schedule F to report this business income.

If you're engaged in a farming business, you may be able to average all or some of your farm income by using income tax rates from the 3 prior years base years to calculate the tax on that income. Income averaging may lower your income tax liability in a year where farm income and taxable income are higher compared to one or more of the 3 prior years.

See the Instructions for Schedule J Form for the definition of the term "farming business. Farmers electing farm income averaging may want to include taxable income from the fair market value trade value of traded farm assets as electable farm income. Under the Tax Cuts and Jobs Act, personal property, such as tractors and equipment, no longer qualifies for a like-kind exchange and is now subject to depreciation recapture on the fair market value of the trade as if cash was exchanged.

You can use income averaging to figure your tax for any year in which you were engaged in a farming business as an individual, a partner in a partnership, or a shareholder in an S corporation. Services performed as an employee are disregarded in determining whether an individual is engaged in a farming business.

However, if you're a shareholder of an S corporation engaged in a farming business, you may treat compensation received from the corporation that's attributable to the farming business as farm income. You don't need to have been engaged in a farming business in any base year.

Corporations, partnerships, S corporations, estates, and trusts can't use income averaging. EFI is the amount of income from your farming business that you elect to have taxed at base year rates. You can designate as EFI any type of income attributable to your farming business. However, your EFI can't be more than your taxable income, and any EFI from a net capital gain attributable to your farming business can't be more than your total net capital gain.

Income from your farming business is the sum of any farm income or gain minus any farm expenses or losses allowed as deductions in figuring your taxable income. However, it doesn't include gain or loss from the sale or other disposition of land, or from the sale of development rights, grazing rights, and other similar rights.

Gains or losses from the sale or other disposition of farm property. Gains or losses from the sale or other disposition of farm property other than land can be designated as EFI if you or your partnership or S corporation used the property regularly for a substantial period in a farming business. Whether the property has been regularly used for a substantial period depends on all the facts and circumstances.

If you or your partnership or S corporation liquidate your farming business, gains or losses on property sold within a reasonable time after operations stop can be designated as EFI. A period of 1 year after stopping operations is a reasonable time. After that, what is a reasonable time depends on the facts and circumstances. If your EFI includes both ordinary income and capital gains, you must use tax rates from each base year to compute tax on an equal portion of each type of income.

For example, you can't tax all of the capital gains at the rate for capital gains from a single base year. If your taxable income for any base year was zero because your deductions were more than your income, you may have negative taxable income for that year to combine with your EFI on Schedule J. You aren't prohibited from using income averaging solely because your filing status isn't the same as your filing status in the base years.

For example, if you're married and file jointly, but filed as single in all of the base years, you may still average farm income. You subtract your EFI from your taxable income and add one-third of it to the taxable income of each of the base years to determine the tax rate to use for income averaging. The allocation of your EFI to the base years doesn't affect other tax determinations. For example, you make the following determinations before subtracting your EFI or adding it to income in the base years.

Whether, in the aggregate, sales and other dispositions of business property section transactions produce long-term capital gain or ordinary loss. Sampling frame for first stage units FSU's : In the rural sector, the sampling frame in most of the strata was the census list of villages.

However, in Assam, where the census was not undertaken, and in a few districts of other states, where the available list as per census was incomplete, the census list of villages was used. However, the census house listing enumeration blocks were considered as the sampling units for some of the new towns declared as urban areas in the population census.

In Gujarat, however, some districts were subdivided for the purpose of region formation on the basis of location of dry areas and the distribution of tribal population in the state. The total number of regions formed in the India as whole was In the rural sector, within each region, each district with a rural population of less than 1.

Districts with larger population were divided into two or more strata, depending on population, by grouping contiguous tehsils, similar as far as possible in respect of rural population density and crop pattern. In Gujarat, however, in the case of districts extending over more than one region, the portion of a district falling in each region constituted a separate stratum even if the rural population of the district as a whole was less than 1.

Further, in Assam, the strata formed for the earlier NSS rounds on the basis of census rural population exactly in the above manner, but with a cut-off of 1. In the urban sector, strata were formed, again within NSS regions, on the basis of in some of the new towns census population of towns.

Each city with a population 10 lakhs or more formed a separate stratum by itself. The remaining towns of each region were grouped to form three different strata on the basis of in a few cases census population. All allocations were adjusted so that the sample size for a stratum was at least a multiple of 4 for the rural and urban sectors separately. This was done to accomplish equal sized samples in each sub-sample and sub-round.

Selection of first stage units: The selection of sample villages was PPS with replacement with population as the size variable, in the form of two independent subsamples. The sample blocks were selected by simple random sampling without replacement, also in the form of two independent subsamples. Two hamlet-groups were then selected from large villages, whereas only one sub-block was selected from the large blocks. The hamlet-groups were selected circular systematically and the sub-block with equal probability.

Selection of households: Two different procedures of selection of households were used for the rural and urban sectors. Households possessing either no land or land less than 0. The rest of the households were then arranged in ascending order by area of land possessed and classified into three substrata, 2, 3 and 4, such that the total area of land possessed by the households in each of the 3 sub-strata was nearly the same.

AIDIS sub-strata 5 to 7 are formed by first merging LHS substrata numbers 3 and 4 and then sub-divided by the merged group into 3 classes, viz. For this, the households were first grouped in three mpce classes, viz. The cut-off points A and B were determined at the state-level on the basis of mpce obtained from the survey on consumer expenditure, NSS 43rd Round, such that the mpce classes, below A, A to B, and B and above, respectively constituted 30 p.

These mpce classes were further sub-divided by indebtedness status of the households to form 7 AIDIS sub strata. Independent samples were selected circular systematically from each of the sub-stratum. For the AIDIS, 9 households from every sample village and every urban block were planned to be surveyed. In the central sample, the actual number of households surveyed was in the rural sector and in the urban sector. Deviations from the Sample Design. The report is available under external resources.

Data Collection Dates of Data Collection. Start End Cycle Visit 1 Visit 2. Data Collection Mode. Data Collection Notes. The information in this schedule has been collected by visiting the same set of sample households twice. In the first visit, information on assets owned on the date of survey as well as addition and depletion of these assets during the period, July 1, to the date of survey has been ascertained to derive the asset position of the households as on 30th June The same procedure has been adopted for assessing the indebtedness position of the households at the beginning of the agricultural year i.

However, provision has been made for obtaining the data on the amount and other particulars of borrowings and repayments made during the first half of the agricultural year i. As for the items of capital expenditure and of acquisition, disposal and loss of assets, information has been collected for the period 1. During the second visit to the households, information has been collected for ascertaining the indebtedness position of the households as on Similarly, data on the capital expenditure and acquisition, disposal and loss of assets during 1.

No provision was kept for the collection of information on assets in the schedule of the second visit. Other differences between the second and first visit schedules were mostly due to the fact that information pertained to two different halves of AY in the two visits. Valuation of Physical Assets: The survey evaluated a physical asset acquired prior to 30th June at the current market price of such an asset in its existing condition prevailing in the locality.

An asset which was disposed of during the reference period i. If an asset was disposed of by way of sale during the reference period, the sale price was considered as the value of the asset. On the other hand, if a physical asset was acquired by way of purchase or construction during the reference period, the purchase price or the total expenditure incurred on construction was taken as its value. To evaluate an asset acquired through own-account construction, the value of labour and materials supplied from the household stock, imputed at current market price, was included in the total expenditure.

For evaluation of an asset 'otherwise acquired', i. However, if an 'otherwise-acquired' asset was sold during the reference period, the sales proceeds was taken as its value. Questionnaires Questionnaires. The data for this survey is collected in the NSS Schedule For this round, the schedule had the following blocks: Block 0 : Descriptive Identification of Sample Household: This block is meant for recording descriptive identification Particulars of the sample household and the sample items in this block are self-explanatory.

Block 5. Block 6: Household Members and Their Activity Particulars : All normal members of the sample household will be listed in this block. Demographic particulars viz. Block 8: Livestock and Poultry Owned : The information on number and value of livestock and poultry owned by the household with break-up by age, sex, use in respect of cattle and buffalo and sex and age of poultry birds has been collected in this block along with the data on the transactions during 1.

Block Particulars of Owned Buildings and Other Constructions : This block is meant for recordings approximate floor area and value of all owned buildings and constructions on the date of survey and also the value of acquisition and disposal of these assets during the period 1. Block Particulars of Non-Farm Business Equipment : The non-farm business equipments include machinery, tools and appliances, furniture and fixtures and other related physical assets used in the non-farm business.

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In —72, three households were drawn from each stratum, making a total of 12 households from each sample village. In —82, two households were drawn from each stratum, making a total of only eight households from each sample village. In other words, the sample size of households per village in — 82 was only one-fifth of the sample size in — Between —82 and —92, there was a minor increase in the number of households selected per village — from eight to nine.

In —03, the number of households per village was increased to The second point that emerges with regard to the sampling methodology of the AIDIS is that, over successive rounds, there was a substantial increase in the size of the State sample of villages Table 2.

The survey of —62 was carried out by field staff of the RBI, but in certain States such as Punjab, Gujarat, Assam, Orissa, and Rajasthan, State statistical bureaus were also involved in covering the matching samples of the State. Moreover, the results were based on a pooling of the two samples. The estimates were prepared after pooling these three samples. In —82 and —92, the size of the State sample exceeded the Central sample. As there was no pooling of Central and State samples during the —92 round, and the survey results of this round were entirely based on a relatively small Central sample.

A number of questions have been raised about the reliability of the estimates provided by the —82 survey. Narayana found that the total sampling variance in —82, inclusive of both within- and between-village variance, was much greater than the corresponding figures from the —62 and —72 rounds.

This pointed to the possibility of an unreliable estimation of indebtedness during the —82 survey. According to Narayana ibid. The reason was that the reliability of any estimate generally depends upon whether it shares any linear relationship with the stratification variable. Narayana argued that it was difficult to trace any direct relation between the area of land possessed and the incidence of indebtedness.

In other words, the proportion of indebted households was not likely to be higher among households with a greater size of landholding. Therefore, the change in the sampling methodology could be expected to affect the reliability of the estimate of incidence of indebtedness.

There were only 1, rural bank branches in , and the number increased to 17, by As against this, there was a major fall in the incidence of indebtedness between —72 and —82 Figure 1. According to Prabhu et al. Other studies have argued that the reliability of the AIDIS estimate of extent of indebtedness average amount of debt is also suspect.

Gothoskar compared the supply-side estimates of the volume of debt outstanding obtained from the records of cooperatives and commercial banks with the demand-side estimates of the same obtained from the AIDIS. He found an underestimation by the AIDIS of the volume of debt by about 50 per cent in —82 and about 40 per cent in — Some other studies have concluded that reduction in the sample sizes of villages and households was responsible for the underestimation of household debt by the AIDIS Narayana ; Prabhu et al.

Apart from the shift in the sampling methodology, an increase in the State sample relative to the Central sample was also considered to be a factor influencing the quality of the AIDIS data. Bell argued that State government agencies were likely to be less equipped in conducting surveys than the NSSO, and that it was therefore desirable to allot a larger Central sample to be canvassed by the NSSO. Gothoskar took the total credit outstanding from rural branches of commercial banks, while I have taken credit to only specific sections.

I have left out the bank credit that goes to the cooperative sector, the public sector, the private corporate sector, joint sector undertakings, and foreign governments, as this may not go directly to households. Thus the comparison here is between the BSR data on credit outstanding reported by the rural branches of commercial banks and regional rural banks RRBs to individuals, proprietorship and partnership firms, joint families, and self-help groups, with the AIDIS data on debt outstanding of rural households from commercial banks.

My exercise shows that the AIDIS underestimated household debt by about 46 per cent and 35 per cent respectively in its —92 and —03 rounds Table 3. In the BSR, credit from rural branches refers to credit from branches located at centres having a population of less than 10, The Census definition of rural areas uses not just population, but also population density and occupational structure as defining criteria.

In other words, the definition of rural areas by the Census may be much broader, and therefore the extent of underestimation by the AIDIS may be even greater than what is presented in Table 3. Another way to test the reliability of the AIDIS estimates is to compare them with estimates available from village surveys. This comparison is, of course, indicative.

In —03, State-level AIDIS estimates for incidence of debt rarely exceeded 40 per cent, and for most States were between 20 per cent and 30 per cent. On the contrary, the village surveys showed debt incidence ranging between 50 per cent and 75 per cent. Hence, even after an increase in the sample size, to an extent, the likelihood of underestimation of household debt during the —92 and —03 rounds cannot be ruled out.

Therefore there is a need to re-examine the sampling methodology in general, and the sample size in particular, of the AIDIS. The Committee on Informal Financial Statistics has recommended an increase in the sample size of villages and households, as well as pooling of estimates from the Central and State samples, to improve the quality of the AIDIS estimates. Though the AIDIS can be used to understand broad trends in rural credit over time, village surveys can provide useful insights into the rural credit system and can capture the magnitude of household debt more accurately.

Acknowledgements: The author thanks V. Ramachandran, S. Shetty and R. Ramakumar for comments on an earlier draft of this note, and Niladri Sekhar Dhar and Partha Saha for processing data from village surveys conducted by the Foundation for Agrarian Studies for this note. The author thanks the participants of the colloquium for useful comments.

The views expressed in this note are those of the author and not of the organisation to which she belongs. Relatives and friends appear to be gradually losing their importance as a source of credit. From 14 per cent in , their share fell to 9 per cent in , and dipped further down to about 7 per cent subsequently. As a whole, among the non-institutional agencies, professional money lenders were the main source of credit.

Among the non-institutional credit agencies, money lenders — both professional and agricultural — in that order were found to be important sources of finance in rural areas, their respective shares being The share of relatives and friends was 7 per cent of the cash dues of rural households. The State-level estimate indicates that of the total outstanding cash dues, the share of institutional agencies had increased marginally during the s in most of the states, after having increased substantially during the s Table 2.

However, the role of the institutional agencies, as judged from their share in the outstanding cash dues, varied from state to state. In contrast, not even 50 per cent of the debt was contracted through the institutional credit agencies in the rural areas of Andhra Pradesh 27 per cent , Rajasthan 34 per cent , Bihar 37 per cent and Tamil Nadu 47 per cent.

During the periods to , the states do not reveal any uniform pattern in the share of institutional agencies in total debt. Compared to , the picture had changed in some of the major states Table 2. Of the 20 major states in the rural, as many as 15 have shown a fall in the share of institutional agencies, notable among them are Bihar, Punjab, Haryana and West Bengal, where the fall in percentage share from values had been to the tune of 36, 23, 23 and 14 percentage points, respectively.

On the other hand, 13 major states out of 21 had registered a rise in the share, which, barring a few with marginal to moderate rise, can be described as sharp to spectacular The detailed State-wise and Agency-wise position is provided in Appendix Tables There was an inverse relationship between land-size and the share of debt from informal sources.

About 36 per cent of the debt of farmers from informal sources had interest ranging from 20 to 25 per cent. Another 38 per cent of loans had been borrowed at an even higher rate of 30 per cent and above, indicating the excessive interest burden of such debt on small and marginal farmers.

The continued dependence of small and marginal farmers on informal sources of credit such as private moneylenders was attributed to constraint in the rural banking network and services arising out of financial sector reforms. Rigid procedures and systems of formal sources preventing easy access by small and marginal farmers, vied with the easy and more flexible methods of lending adopted by informal sources.

The Task Force members came across situations where farmers were borrowing at the rate of five to ten per cent per month. The identification of farmers indebted to private moneylenders is difficult. Such loans in most cases have no formal records and identifying and authenticating the debt from moneylenders may lead to problems of moral hazard GOI, According to the Report, credit needs of small and marginal farmers are not only growing but are getting diversified due to increasing commercialization and modernization of agriculture.

Simultaneously, for a variety of other needs, farmers incur considerable expenditure, resulting in increased borrowings. Adequacy, timeliness, affordability and convenience are factors that influence farmers, and for that matter, all borrowers, in their choice of creditors. Given that a single source may not to be able to satisfy all their credit needs, many farmers approach both formal and informal sources.

Invariably, those who cannot afford any collateral are forced to borrow from informal sources. The Task Force reviewed the debt swap schemes of banks and revealed that these schemes had limited success as farmers were reluctant to disclose the name of the money-lenders, apprehensive in disclosing debt and some had even repaid the existing debt out of their Kisan Credit Card limits.

Even though the Task Force came across some good debt swap schemes, bankers reported difficulty in taking these to scale and also reported that there was little guarantee that farmers would not ever again borrow from moneylenders. The Report recommended legislative reforms to streamline the activities of moneylenders through suitable mechanism of incentives and disincentives.

In this regard, Jeromi attempted to analyse the working of moneylenders in Kerala based on a sample survey, and mentioned that the existing legal provisions and regulatory and supervisory mechanisms are inadequate to protect the interests of both depositors and creditors in rural Kerala.

The growing commercialisation of Indian agriculture has encouraged the rise of trader-moneylender, as the formal sector finance is inadequate to meet the growing credit requirements of agriculture. The sheer numbers of moneylenders, easy access to them, and their intricate relationships with the borrowers coupled with limited access to formal institutions made it difficult for borrowers to complain against them.

Microfinance sector in India has progressed remarkably since s and this sector has been acting as an important ally in expanding financial inclusion in rural areas NABARD, Reserve Bank provides guidelines to banks for mainstreaming micro-credit providers, inter alia , stipulated that micro-credit extended by banks to individual borrowers directly or through any intermediary would be reckoned as part of their priority sector lending.

Though, there are different models for microfinance provision, the self-help-group SHG -Bank Linkage Programme has emerged as the major microfinance program in the country. It is being implemented by commercial banks, regional rural banks RRBs and cooperative banks. The gathering momentum in the microfinance sector has brought into focus the issue of regulating the sector. The Reserve Bank has accepted the broad framework of regulations recommended by the Committee Report. The proper balancing of the resources at the Reserve Bank to supervise these additional sets of institutions besides the existing regulated institutions could be an important issue.

Requiring all MFIs to register is a critical and necessary step towards effective regulation. Compulsory registration of the MFIs would bring the erstwhile money-lenders into the fold of organised financial services in the hinterland who had been acting as MFIs hitherto. The key findings from the above analysis is that informal credit has certainly declined as a percentage of total debt, and both professional and agricultural moneylenders have reduced their share over time.

At the all India level, among the institutional credit agencies, the co-operative societies and the commercial banks were the two most important agencies in the rural sector. These two agencies together shared 91 per cent of the entire amount of debt advanced by the institutional agencies, accounted for 52 per cent of the outstanding cash debt, with co-operative societies Of the 20 major states in , as many as 15 have shown a fall in the share of institutional agencies, notable among them are Bihar, Punjab, Haryana and West Bengal.

The above facts indicate that the cooperatives, commercial banks, and other formal financial sector programs in rural areas have not displaced informal sources of credit altogether as 43 per cent of rural households continue to rely on informal finance in The most important reason for continuation of informal rural credit market is that the existing financial institutions tend to restrict their lending activities to more risky field of lending to the agricultural sector.

Those in the rural credit market prefer to use informal sources of credit despite the fact that the interest rates are much higher. Informal sources do not insist on punctual repayment as banks or cooperative societies do.

Usually, it is possible to obtain loans for such purposes as marriage and litigation only from informal sources. There are generally no intricate and complicated rules governing the granting of loans by the village moneylenders. And informal sources are willing to lend money more freely without collateral and on the borrower's mere promise to repay. As reported in Malegam Committee Report, the impact of microfinance on the lives of the poor is inconclusive.

The micro surveys create fears that in some cases microfinance has created credit dependency and cyclical debt. The analysts expressed doubt as to whether lending agencies have in all cases remained committed to the goal of fighting poverty or whether they are solely motivated by financial gain. This augurs well for the regulation of microfinance as a tool of financial inclusion and greater well being of the society.

The author would like to thank Shri K. However, the usual disclaimer applies. Corresponding E-mail :. Sarangi submitted to the Government of India has analysed the rural credit scenario based on visits to 45 villages across 17 major States during , review of available literature, laws relating to moneylenders - maintaining continuity with data on AIDIS Survey. Ghate, P. Jeromi, P. Mohan R. Malegam , Mumbai: Reserve Bank of India. Reddy, Y. Subbarao, D. Skip to main content.

Search the Website Search. Home Publications Occasional Working Papers. RRBs 0. Note: Percentage share of different credit agencies to the outstanding cash dues of the households as on 30th June. Institutional agencies All-India Level From Table 1, it can be observed that, the most remarkable performance was that of the commercial banks while the share of co-operative societies in the outstanding cash dues of cultivator households increased from Non- Institutional agencies All-India Level The combined share of all the non- institutional credit agencies in the outstanding cash dues of cultivator households recorded a sharp decline of 32 percentage points during s but the decline got arrested in the s — the fall being just of about 3 percentage points but increased to 43 per cent subsequently.

State-level Changes during to The State-level estimate indicates that of the total outstanding cash dues, the share of institutional agencies had increased marginally during the s in most of the states, after having increased substantially during the s Table 2. Micro Finance Scenario Microfinance sector in India has progressed remarkably since s and this sector has been acting as an important ally in expanding financial inclusion in rural areas NABARD, Concluding Observations The key findings from the above analysis is that informal credit has certainly declined as a percentage of total debt, and both professional and agricultural moneylenders have reduced their share over time.

References Ghate, P. Andhra Pradesh 1. Assam Bihar 4. Gujarat 3. Kerala 4. Madhya Pradesh 4. Madras 2. Maharashtra Mysore 4. Orissa Punjab 3. Rajasthan 2. Uttar Pradesh 3. West Bengal Andhra Pradesh 2. Bihar 5. Gujarat 6. Karnataka 8. Orissa 8. Rajasthan 3. Tamil Nadu 5. Uttar Pradesh 8. Assam 2. Bihar 9. Gujarat 1. Haryana 6. Himachal Pradesh 6. Kerala 2. Madhya Pradesh 5. Maharashtra 2. Mysore 3. Orissa 7.

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All india debt and investment survey 2021 1040 If a canceled debt is excluded from income ak investment blog it takes place when you're insolvent, the exclusions in situations 3 and 4 don't apply to the extent you're insolvent. The position in regard to the assets and liabilities of the sample households was required to be collected with reference to a fixed date, namely, as on the 30th June The prior average annual income is the average of the gross receipts from the affected acreage for the last 3 tax years before the tax year in which you started to install the improvement. Questionnaires Questionnaires. Your basis in the certificate is zero. In figuring the limit on the basis reduction in 5 under Order of reductionearlier, use the remaining adjusted basis of your properties after making this election. Interest Incomelater.
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Section V concludes with major observations. Information on assets, economic activities, particulars of credit operations and the incidence of indebtedness in the rural areas were collected to assess the demand for rural credit. Further, data on the extent and mode of operations of different credit agencies were also collected with a view to examine the supply side of the credit. The scope of the survey was extended to include capital expenditure in the household sector and other associated indicators of the rural economy.

Both the surveys by the Reserve Bank were conducted for rural areas only. These surveys generate basic information on assets, liabilities and capital expenditure in the household sector of the economy. These reports by NSSO gives the estimates of indebted households and the amount of debt classified by various aspects at the State and all-India level in both rural and urban areas.

At present, the decennially conducted AIDIS is the only nation-wide enquiry providing data on household assets, indebtedness and capital expenditure. The main objective of the AIDIS is to generate reliable estimates on assets, liabilities and capital expenditure of the household sector.

The survey provides the details of household liabilities required for the formulation of credit policy of financial institutions and planning for development. Of all the characteristics in AIDIS, credit agencies and terms and rate of interest of loans have been probed into more deeply than the rest, in view of their historical importance regarding the supply side and cost of loans, respectively. The investigation extended over nearly 1,30, families having residents in villages and all types of credit agencies in 75 selected districts.

During , an increase in debt was recorded in all the 75 districts in 20 districts the increase in debt was below 50 per cent; in 31 districts the increase varied from 50 to per cent; in 19 districts from to per cent; and in 5 districts the increase exceeded per cent. Among creditors, the moneylender, and among moneylenders the professional moneylender dominates the rural credit scenario.

The dominance itself has been made possible by the ineffectiveness of all attempts to organise a competitive agency for supply of rural credit. Loans from relatives virtually interest free accounted for 14 per cent of the reported borrowings of cultivators. About 6 per cent of the total borrowings of cultivators were from traders and commission agents. The combined contribution of Government and Cooperatives was about 6 per cent of the total rural credit, each accounting for about 3 per cent.

As for commercial banks, 1 per cent represented the insignificant part played by them in the direct financing of the cultivator. In 44 out of the 75 districts selected for the Survey, not a single pie was reported as having been borrowed by cultivators from a commercial bank. However, a large part of the working funds borrowed by subsistence farmers seems to be related to consumption rather than production. The problem turned into more complicated one due to the socio-economic structure of the village with its characteristics of caste and inequality.

Other factors that might have aided to the trend towards an increase in debt were relatively large incidence of drought, famine and inclement seasonal credit. As our description built upon statistical data analysis and survey of literature, the brief about significance of informal credit agencies in supplying credit to rural areas during s can be summarised as follows: Moneylenders were dominant not only due to their effective adaptation to rural areas, but also the ineffectiveness of any other competitive agency.

Traders and Commission Agents were in direct contact with the cultivators and much of this financing was really in the nature of advance payment for purchase of products. The indigenous bankers were financier of trade and also traders themselves as well as finances moneylenders. Commercial banks were more interested in rural areas more for the purpose of getting deposits rather than financing either agriculture or cottage industry.

In this second Survey by Reserve Bank, the outstanding loans owed to agriculturist moneylenders accounted for about 46 per cent of the aggregate outstanding of all rural households, nearly double the share compared to first Survey. The share of outstanding loans owing to professional moneylenders was next highest though their share declined constituting 15 per cent of the aggregate outstanding.

As per the Survey findings on all-India basis Table 1 , the share of cooperatives was at 9. The shares of landlords and commercial banks in the aggregate outstanding were negligible at 0. This fact signifies the continuance of informal finance in rural India that might have prompted the nationalization of commercial banks in in the first phase.

The State-wise position in respect of outstanding loan owed to different credit agencies is provided in Appendix Table 1. It can be ascertained that the outstanding loans owed to agricultural moneylenders constitute 74 per cent of the aggregate outstanding of the rural households in Bihar, about 64 per cent each in Andhra Pradesh and Madras and about 60 per cent in Mysore. On the other hand, the share of cooperatives was below 5 per cent in Bihar 0.

For other states, it varied between 7 — 14 per cent. The share of professional moneylenders in the aggregate outstanding was the highest in Orissa It was very low in Mysore 1. The share of Government in the aggregate outstanding was about 19 per cent in West Bengal and Maharashtra, 15 per cent in Assam and 12 per cent in Orissa. In all other States, it was 5 per cent or less. The first three categories of informal lenders — landlords, agricultural moneylenders, and professional moneylenders — are not necessarily distinct from one another depending on the locality.

But generally speaking, landlord money-lenders extend credit to tenants; agricultural moneylenders primarily deal with agricultural labourers and small farmers; and professional moneylenders service a wider range of customers and may register themselves as companies, partnerships, and trusts Ghate, In contrast to professional moneylenders who lend their own money, indigenous bankers broker funds between banks and their clients, who tend to be traders rather than farmers.

One of the important reasons for continued dependence on moneylenders is that the formal credit delivery structure has not stretched to the villages despite its penetration Ghate The formal credit delivery channels also lack the personal bonds that moneylenders enjoy with the borrowers.

Borrowers obtain their loans more promptly from non-institutional sources. At the outset, it may be mentioned that the Survey results of 26th round , 37th round , 48th round and 59th round of AIDIS are comparable across the Agency-wise and State-wise over the period. In order to compare the progress of formal and informal finance after the bank nationalization and to provide an overview of the flow of credit to rural areas in terms of credit agency-wise, we have analyzed these Survey results in a comparative manner and State-wise separately.

It is important to note that there are problems in using data from these surveys given the sharp reduction in sample size of households and villages, especially in the 37th round in It may further be mentioned that, the estimates of household debt starting from 48th round in are based on both cash and kind, whereas before that it was based on cash debt. The share of institutional credit agencies in the outstanding cash dues of the rural households at the all-India level increased from 29 per cent in to 61 per cent in and then the pace of increase was arrested rising to 64 per cent in During the following decade, the share declined by about 7 percentage points and reached 57 per cent in It seems that credit cooperatives, commercial banks, and other formal financial sector programs in rural areas have not displaced informal sources of credit, altogether.

The AIDIS survey revealed that 43 per cent of rural households continue to rely on informal finance, which includes professional moneylenders, agricultural moneylenders, traders, relatives and friends, and others. From Table 1, it can be observed that, the most remarkable performance was that of the commercial banks while the share of co-operative societies in the outstanding cash dues of cultivator households increased from It appears that the large number of branches that was set up by various commercial banks in s and the subsequent introduction of rural banking schemes have driven the commercial banks to assume the role of principal credit agency in rural areas.

It may be of interest to note that the share of government departments in the outstanding cash dues of cultivator households, after showing a decline from 7 per cent in to 4 per cent in , again rose to 6 per cent in and dropped to 2 per cent in As a whole, at the all India level, among the institutional credit agencies, the co-operative societies and the commercial banks were the two most important agencies in the rural sector.

These two agencies together, shared 91 per cent of the entire amount of debt advanced by the institutional agencies, accounted for 52 per cent of the outstanding cash debt, with co-operative societies The gradual increase in the share of formal institutional credit in agriculture witnessed some reversal during mainly because of a pull back by commercial banks.

This disquieting trend is, in part, due to a contraction in rural branch network in the s, and in part due to the general rigidities in procedures and systems of institutional sources of credit Subbarao, The combined share of all the non- institutional credit agencies in the outstanding cash dues of cultivator households recorded a sharp decline of 32 percentage points during s but the decline got arrested in the s — the fall being just of about 3 percentage points but increased to 43 per cent subsequently.

Subsequently, the share has jumped to about 20 per cent in Relatives and friends appear to be gradually losing their importance as a source of credit. From 14 per cent in , their share fell to 9 per cent in , and dipped further down to about 7 per cent subsequently. As a whole, among the non-institutional agencies, professional money lenders were the main source of credit. Among the non-institutional credit agencies, money lenders — both professional and agricultural — in that order were found to be important sources of finance in rural areas, their respective shares being The share of relatives and friends was 7 per cent of the cash dues of rural households.

The State-level estimate indicates that of the total outstanding cash dues, the share of institutional agencies had increased marginally during the s in most of the states, after having increased substantially during the s Table 2. However, the role of the institutional agencies, as judged from their share in the outstanding cash dues, varied from state to state. In contrast, not even 50 per cent of the debt was contracted through the institutional credit agencies in the rural areas of Andhra Pradesh 27 per cent , Rajasthan 34 per cent , Bihar 37 per cent and Tamil Nadu 47 per cent.

During the periods to , the states do not reveal any uniform pattern in the share of institutional agencies in total debt. Compared to , the picture had changed in some of the major states Table 2. Of the 20 major states in the rural, as many as 15 have shown a fall in the share of institutional agencies, notable among them are Bihar, Punjab, Haryana and West Bengal, where the fall in percentage share from values had been to the tune of 36, 23, 23 and 14 percentage points, respectively.

On the other hand, 13 major states out of 21 had registered a rise in the share, which, barring a few with marginal to moderate rise, can be described as sharp to spectacular The detailed State-wise and Agency-wise position is provided in Appendix Tables There was an inverse relationship between land-size and the share of debt from informal sources. About 36 per cent of the debt of farmers from informal sources had interest ranging from 20 to 25 per cent.

Another 38 per cent of loans had been borrowed at an even higher rate of 30 per cent and above, indicating the excessive interest burden of such debt on small and marginal farmers. The continued dependence of small and marginal farmers on informal sources of credit such as private moneylenders was attributed to constraint in the rural banking network and services arising out of financial sector reforms.

Rigid procedures and systems of formal sources preventing easy access by small and marginal farmers, vied with the easy and more flexible methods of lending adopted by informal sources. The Task Force members came across situations where farmers were borrowing at the rate of five to ten per cent per month. The identification of farmers indebted to private moneylenders is difficult. Such loans in most cases have no formal records and identifying and authenticating the debt from moneylenders may lead to problems of moral hazard GOI, According to the Report, credit needs of small and marginal farmers are not only growing but are getting diversified due to increasing commercialization and modernization of agriculture.

Simultaneously, for a variety of other needs, farmers incur considerable expenditure, resulting in increased borrowings. Adequacy, timeliness, affordability and convenience are factors that influence farmers, and for that matter, all borrowers, in their choice of creditors. Given that a single source may not to be able to satisfy all their credit needs, many farmers approach both formal and informal sources.

Invariably, those who cannot afford any collateral are forced to borrow from informal sources. The Task Force reviewed the debt swap schemes of banks and revealed that these schemes had limited success as farmers were reluctant to disclose the name of the money-lenders, apprehensive in disclosing debt and some had even repaid the existing debt out of their Kisan Credit Card limits. Even though the Task Force came across some good debt swap schemes, bankers reported difficulty in taking these to scale and also reported that there was little guarantee that farmers would not ever again borrow from moneylenders.

The Report recommended legislative reforms to streamline the activities of moneylenders through suitable mechanism of incentives and disincentives. In this regard, Jeromi attempted to analyse the working of moneylenders in Kerala based on a sample survey, and mentioned that the existing legal provisions and regulatory and supervisory mechanisms are inadequate to protect the interests of both depositors and creditors in rural Kerala. The growing commercialisation of Indian agriculture has encouraged the rise of trader-moneylender, as the formal sector finance is inadequate to meet the growing credit requirements of agriculture.

The sheer numbers of moneylenders, easy access to them, and their intricate relationships with the borrowers coupled with limited access to formal institutions made it difficult for borrowers to complain against them. Microfinance sector in India has progressed remarkably since s and this sector has been acting as an important ally in expanding financial inclusion in rural areas NABARD, Reserve Bank provides guidelines to banks for mainstreaming micro-credit providers, inter alia , stipulated that micro-credit extended by banks to individual borrowers directly or through any intermediary would be reckoned as part of their priority sector lending.

Though, there are different models for microfinance provision, the self-help-group SHG -Bank Linkage Programme has emerged as the major microfinance program in the country. It is being implemented by commercial banks, regional rural banks RRBs and cooperative banks.

The gathering momentum in the microfinance sector has brought into focus the issue of regulating the sector. The Reserve Bank has accepted the broad framework of regulations recommended by the Committee Report. The proper balancing of the resources at the Reserve Bank to supervise these additional sets of institutions besides the existing regulated institutions could be an important issue.

Requiring all MFIs to register is a critical and necessary step towards effective regulation. Compulsory registration of the MFIs would bring the erstwhile money-lenders into the fold of organised financial services in the hinterland who had been acting as MFIs hitherto.

The key findings from the above analysis is that informal credit has certainly declined as a percentage of total debt, and both professional and agricultural moneylenders have reduced their share over time. At the all India level, among the institutional credit agencies, the co-operative societies and the commercial banks were the two most important agencies in the rural sector.

These two agencies together shared 91 per cent of the entire amount of debt advanced by the institutional agencies, accounted for 52 per cent of the outstanding cash debt, with co-operative societies Of the 20 major states in , as many as 15 have shown a fall in the share of institutional agencies, notable among them are Bihar, Punjab, Haryana and West Bengal.

The above facts indicate that the cooperatives, commercial banks, and other formal financial sector programs in rural areas have not displaced informal sources of credit altogether as 43 per cent of rural households continue to rely on informal finance in This page provides - India External Debt - actual values, historical data, forecast, chart, statistics, economic calendar and news.

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