How is Farming Income Calculated? (IRS Form 1040, Schedule F)

If your borrower mentions having a working farm and wants to use the income for qualification, but you’re unsure where to locate this information, refer to our How Is This Income Calculated Tutorials!

Both Fannie Mae and Freddie Mac mandate a recent 2-year history of the income’s receipt, which can be provided through the use of the Federal Tax Returns. For Farming income, Schedule F is where the data needed for income calculations is located.

From Schedule F:
  1. Take the Net Profit or Loss Value (Schedule F, Line 34).
  2. Add Non-Tax Portion Ongoing Co-op & CCC Payments (See specifics below):
  1. Line 3a minus 3b
  2. Line 4a minus 4b
  3. Line 5a minus 5b
  4. Line 6a minus 6b
  1. Add non-recurring loss (Schedule F, Lines 2-8).
  2. Add Depreciation (Schedule F, Line 14).
  3. Add Amortization or Casualty Loss or Depletion *only if noted* (Schedule F, Line 32).
  4. Add Business Use of Home *only if noted* (Schedule F, Line 32).
  5. Sum steps 1-6 to get the year subtotal.
  6. Repeat steps 1-7 for the next year of income.
  7. Then follow the substeps:
  1. If income from year to year is increasing, then divide by 24 months to get the Average Monthly Income.
  2. If income from year to year is decreasing, then divide the most recent year by 12 months to get the Average Monthly Income.

For more information about documentation requirements and income qualifiers for Schedule F Farming income, we encourage you to review the Fannie Mae and Freddie Mac guidelines.