Tax Loss Farming

About 43 percent of the 2.9 million individuals filing U.S. farm income tax returns in 1970 reported a farm loss. Forty percent of total farm losses were reported by individuals with less than $5,000 in basic income and about 17 percent were reported by those with $25,000 or more. Generally, farm losses became more frequent as basic income rose. Over 90 percent of 1970 farm loss returns had a loss of less than $5,000. Losses of $10,000 or more were reported by about 3 percent. These larger losses were concentrated in two basic income classes--those with negative basic incomes and those with $25,000 or more. Nonfarm income was substantially higher for the farm loss group than for the group reporting farm profits. As expected, farm losses became more important in offsetting nonfarm income as farm size increased. Directly limiting the amount of farm loss that could be used to offset nonfarm income to $10,000 would have affected 3.3 percent of 1970 farm loss returns. With a $20,000 limitation, 1.2 percent of the farm loss returns would have increased tax liabilities. A $30,000 limitation would have affected 0.6 percent of the returns.