Crop Insurance and Crop Disaster Payments

You must include in income any crop insurance proceeds you receive as the result of physical crop damage or reduction of crop revenue, or both. You generally include them in the year you receive them. Treat as crop insurance proceeds the crop disaster payments you receive from the federal government as the result of destruction or damage to crops, or the inability to plant crops, because of drought, flood, or any other natural disaster.

AX TIP **You can request income tax withholding from crop disaster payments you receive from the federal government. Use Form W-4V.

Election to postpone reporting until the following year. You can postpone reporting some or all crop insurance proceeds as income until the year following the year the physical damage occurred if you meet all the following conditions.

  • You use the cash method of accounting.
  • You receive the crop insurance proceeds in the same tax year the crops are damaged.
  • You can show that under your normal business practice you would have included income
    from the damaged crops in any tax year following the year the damage occurred.

Proceeds received from revenue insurance policies may be the result of either yield loss due to physical damage or to decline in price from planting to harvest. For these policies, only the amount of the proceeds received as a result of yield loss can be deferred. Proceeds received from weather insurance policies cannot be deferred if the payment is based on rainfall amounts and is not a result of physical damage to a crop.

To postpone reporting some or all crop insurance proceeds received, report the amount you received on Schedule F, line 6a, but don’t include it as a taxable amount on line 6b. Check the box on line 6c and attach a statement to your tax return. The statement must include your name and address and contain the following information.

  • A statement that you’re making an election under section 451(f) and Regulations section
    1.451-6.
  • The specific crop or crops physically destroyed or damaged.
  • A statement that under your normal business practice you would have included income from some or all of the destroyed or damaged crops in gross income for a tax year following the year the crops were destroyed or damaged.
  • The cause of the physical destruction or damage and the date or dates it occurred.
  • The total payments you received from insurance carriers, itemized for each specific crop, and the date you received each payment.
  • The name of each insurance carrier from whom you received payments.

One election covers all crops representing a single trade or business. If you have more than one farming business, make a separate election for each one. For example, if you operate two separate farms on which you grow different crops and you keep separate books for each farm, you should make two separate elections to postpone reporting insurance proceeds you receive for crops grown on each of your farms.

An election is binding for the year unless the IRS approves your request to change it. To request IRS approval to change your election, write to the IRS at the following address, giving your name, address, identification number, the year you made the election, and your reasons for wanting to change it.

Ogden Submission Processing Center
P. O. Box 9941
Ogden, UT 84409