Schedule J (Form 1040) lets people with income from farming or fishing figure their tax by averaging all or part of this year's farm income over the previous 3 years, the base years, at those years' tax rates. For a 2025 return, a third of your elected farm income is added to your 2022, 2023 and 2024 taxable income. It can lower your tax when this year was high and one or more earlier years were low. A different Schedule J on Form 1120 is simply where a corporation works out its tax.
Everything below comes from the IRS's 2025 Schedule J (Form 1040), its instructions dated December 8, 2025, and the 2025 Form 1120 instructions, as of October 2026.
Which Schedule J do you mean?
| Form | What Schedule J does | Who uses it |
|---|---|---|
| Schedule J (Form 1040) | Income averaging for individuals with income from farming or fishing | Farmers, fishers and some landowners and crew members filing Form 1040, 1040-SR or 1040-NR |
| Form 1120, Schedule J | Tax Computation and Payment for the corporation | C corporations filing Form 1120 |
On the corporate side, line 1a is the income tax: taxable income multiplied by 21%. The rest of this page covers the farm and fishing version, which is the one people search for when they want to cut their tax bill.
Who can use farm income averaging
The instructions define a farming business as cultivating land or raising or harvesting any agricultural or horticultural commodity. That includes:
- operating a nursery or sod farm
- raising or harvesting trees bearing fruits, nuts or other crops
- raising ornamental trees, but not evergreens more than 6 years old when cut
- raising, shearing, feeding, caring for, training and managing animals
- leasing land to a farming tenant, but only on a share-of-production lease agreed in writing before the tenant starts
A fishing business covers catching or harvesting fish meant for sale, operations at sea that support it, leasing a fishing vessel on a share-of-catch basis, and crew pay based on a share of the catch. Contract harvesting of someone else's crop, and simply buying and reselling plants or animals, don't count.
Here's the point that surprises people: you don't need to have been farming or fishing in any of the base years. You also don't need the same filing status this year as in those years.
How the calculation works
The form runs in a fixed order. The elected farm income is the part you choose to average, and it can't be more than your taxable income.
- Line 1: your 2025 taxable income from Form 1040, 1040-SR or 1040-NR, line 15.
- Line 2a: the elected farm income you want to average, with any capital gain in it split out on lines 2b and 2c.
- Lines 3 and 4: the tax on the rest of your 2025 income at 2025 rates.
- Line 6: elected farm income divided by 3.0.
- Lines 5 to 16: that third is added to your 2022, 2023 and 2024 taxable income, and tax is worked out for each year at its own rates.
- Lines 18 to 23: the tax already paid in those years is taken away, and the result is your 2025 tax, carried to Form 1040, line 16.
If you used Schedule J in any of those years, the form tells you to start from the figure on that earlier Schedule J rather than the original return, so the averaging chains from year to year.
When a base year was a loss year
A low or negative base year is exactly when averaging pays off, and the form allows for it. If your 2022 taxable income was zero or less, you don't just enter zero: the instructions give a 2022 Taxable Income Worksheet that can produce a negative figure on line 5. Lines 11 and 15 can also be negative for 2023 and 2024. If you didn't file a return for a base year, you use the taxable income you would have reported had you been required to file. Capital gain inside your elected farm income goes on lines 2b and 2c, so it's still taxed at capital gain rates in each base year.
What elected farm income includes and leaves out
| Counts | Doesn't count |
|---|---|
| Income, gains, losses and deductions from your farming or fishing business | Gain or loss from selling land |
| Gain on selling property used in the business for a substantial period | Sales of development rights, grazing rights and similar rights |
| Wages as an S corporation shareholder in a farming or fishing business, or as a share-of-catch crew member | Gain realized long after the business stopped (a sale within 1 year of stopping is presumed reasonable) |
Before you file
- Get copies of your 2022, 2023 and 2024 returns. Form 4506 orders copies for a fee, and Form 4506-T gives a free transcript.
- Compare: the form warns your tax may be lower using the normal tax table or capital gain worksheets. Attach Schedule J only if you use it.
- Averaging doesn't apply to the alternative minimum tax on Form 6251.
- Keep your 2025 return, because you may need it to average in 2026, 2027 or 2028, and keep 2022 records for at least 3 years after April 15, 2026.
The verdict
Schedule J is worth running in any year your farm or fishing income jumps, because a good harvest shouldn't be taxed as if it were your normal income. The work is mostly gathering the three base-year returns, then letting the form do the arithmetic. Run the numbers both ways, and only attach it if it wins.
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Farm profit is first worked out on another schedule, which Schedule F explains.
Frequently asked questions
What is Schedule J on Form 1040?
It's the form individuals with income from farming or fishing use to average that income over the previous 3 years at those years' tax rates.
Do I need to have farmed in the base years to use Schedule J?
No. The instructions say you don't need to have been in farming or fishing in any of the base years.
Which years are the base years for a 2025 Schedule J?
2022, 2023 and 2024. A third of your elected farm income is added to each of them.
Does Schedule J apply to the alternative minimum tax?
No. The election doesn't apply when you figure alternative minimum tax on Form 6251.
What is Schedule J on Form 1120?
It's the corporation's Tax Computation and Payment schedule, where income tax is taxable income multiplied by 21%.
Can I sell farmland and average the gain?
No. Gain or loss from selling land, and from selling development or grazing rights, isn't elected farm income.
