Often, farmers and other landowners enter into crop-share arrangements for the rental of their land. The rent landlords receive in this kind of arrangement is based on a share of the crop or livestock produced on the land.
Rental income derived from real estate is generally not subject to self-employment (SE) tax. However, an exception to this rule causes farm landlords to be subject to SE tax on real estate rental income, including crop-share rents if the following criteria are met:
- The rental income is derived from an arrangement under which the lessee shall produce agricultural commodities on the land.
- The arrangement calls for the material participation of the owner in the production or management of the production of the agricultural commodity.
- The owner does in fact materially participate in the activity.
The IRS regulations provide guidance for determining whether the landlord materially participates. Factors to consider include making management decisions about (1) when and what to plant, (2) rotation of crops, and (3) the kinds of machinery to be used.… Continue readingRead More »