New Limitation on Farm Losses

For tax years beginning after 2009, the farming loss of a taxpayer, other than a C corporation, is limited for any tax year in which any applicable subsidies are received.

The deductible loss is limited to the greater of

(a) $300,000 ($150,000 for a married person filing separately), or

(b) The taxpayer's total net farm income for the prior five tax years.

Applicable subsidies - are (1) any direct or counter-cyclical payments under title I of the Food, Conservation, and Energy Act of 2008 (or any payment elected in lieu of any such payment), or (2) any Commodity Credit Corporation (CCC) loan.

Partnerships and S corporations – For partnerships and S corporations, the limit is applied at the partner or shareholder level.

Total net farm income is an aggregation of all income and loss from farming businesses for the prior five tax years. Any loss that is disallowed is carried forward to the next tax year and treated as a deduction attributable to farming businesses in that year. Farming losses due to fire, storm, or other casualty, or disease or drought, are disregarded when calculating the limitation.

Passive Activities – If the farming activity is a passive activity, the farming loss limitation rules apply before the passive activity loss rules.

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