You can exclude from income a canceled debt that is qualified principal residence debt. The exclusion has been extended through 2012. The amount excluded from income is applied to reduce (but not below zero) the basis of your principal residence. See Qualified Principal Residence Debt, later.

Payments received under the FHPP are excluded from income. These are payments received from the Department of Agriculture for an integrated pest management strategy to protect forest, trees, and woods.

You can elect to defer income from the cancellation of certain business debt. See Cancellation of Debt for more information.

You may receive income from many sources. You must report the income from all the different sources on your tax return, unless it is excluded by law. Where you report the income on your tax return depends on its source.

This chapter discusses farm income you report on Schedule F (Form 1040). For information on where to report other income, see the Instructions for Form 1040.

The rules discussed in this chapter assume you use the cash method of accounting. Under the cash method, you generally include an item of income in gross income in the year you receive it. See Cash Method in chapter 2.

If you use an accrual method of accounting, different rules may apply to your situation. See Accrual Method in chapter 2.

See chapter 16 for information about getting publications and forms.

Report your farm income on Schedule F (Form 1040). Use this schedule to figure the net profit or loss from regular farming operations.

Income from farming reported on Schedule F (Form 1040) includes amounts you receive from cultivating, operating, or managing a farm for gain or profit, either as owner or tenant. This includes income from operating a stock, dairy, poultry, fish, fruit, or truck farm and income from operating a plantation, ranch, range, or orchard. It also includes income from the sale of crop shares if you materially participate in producing the crop. See Rents (Including Crop Shares), later.

Income received from operating a nursery, which specializes in growing ornamental plants, is considered to be income from farming.

Income reported on Schedule F does not include gains or losses from sales or other dispositions of the following farm assets.

• Land.
• Depreciable farm equipment.
• Buildings and structures.
• Livestock held for draft, breeding, sport, or dairy purposes.

Gains and losses from most dispositions of farm assets are discussed in chapters 8 and 9. Gains and losses from casualties, thefts, and condemnations are discussed in chapter 11.