What this line means
A reconciliation line for taxpayers who report net farm rental income on line 39 and also have farming or fishing income from other sources. Line 41 separates the farming and fishing income included in the Schedule E total so it can be identified for purposes of income averaging on Schedule J. If you do not have farming or fishing income, leave this line blank — it does not change your total tax. It is an informational line used to identify eligible income for the farm income averaging election.
Does this apply to you?
- You reported farm rental income on line 39 (from Form 4835) and want to use income averaging on Schedule J
- You received farming or fishing income through a partnership or S corporation reported on Part II
- You elected to average farm income over three prior years using Schedule J
Easy to overlook
Farm income averaging can reduce your tax rate significantly Schedule J allows farmers and fishers to average their income over the prior three years, effectively spreading a high-income year across lower-income years to reduce the marginal tax rate. The farming and fishing income identified on line 41 is the amount eligible for this election. Farmers with volatile year-to-year income benefit most from averaging, but many overlook it because it requires identifying the farming portion of their Schedule E income. 1 IRS Schedule E instructions — Line 41
Partnership farming income must also be included If you received farming income through a partnership (reported on Part II), that farming income is also eligible for income averaging. The K-1 identifies farming income separately. Include the farming portion of your partnership income in the line 41 reconciliation along with any Form 4835 amounts from line 39. Missing partnership farming income reduces the amount eligible for averaging. 2 IRS Form 4835 instructions — Reconciliation of farming income
Watch out for this
Entering a line 41 amount when you are not electing farm income averaging on Schedule J. Line 41 is informational — it identifies farming and fishing income within your Schedule E total for averaging purposes. It does not change the amount on line 40 or your total income. Entering an amount here without filing Schedule J has no tax effect and can cause confusion during processing.
Footnotes
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IRS Schedule E (Form 1040) Instructions, Line 41. https://www.irs.gov/instructions/i1040se ↩
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IRS Schedule J (Form 1040) Instructions, Farm Income Averaging. https://www.irs.gov/instructions/i1040sj ↩