We had a reader ask the following question:
Based on the facts presented in the question, the answer should be yes.
Crop insurance proceeds are normally reported in the year of receipt. However, if a farmer meets the following three conditions, they can defer the revenue to the next year:
We are assuming that the farmer in the question meets the first two conditions, i.e., cash method farmer and the proceeds received are for the current crop year.
The IRS has ruled that a farmer who can established a history of reporting more than 50% of their crop sales in the year after harvest would be allowed to defer any crop insurance proceeds for the current crop into 2011.
In order to make this election, the farmer should attach to their income tax return describing the facts of the crop insurance proceeds such as the following:
Remember, if the crop was damaged in 2010 and you receive the crop insurance proceeds in 2011, you can not defer the income till 2012.
Also, if you do elect to report the income from the crop insurance proceeds in the current year, you may be able to dramatically reduce the tax by using farm income averaging.