Title 26 — Internal Revenue CodeRelease 119-73
§1301 Averaging of farm income
Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter Q— - Readjustment of Tax Between Years and Special Limitations › Part PART I— - INCOME AVERAGING › § 1301
Summary
If a person who runs a farming or fishing business picks this option, their tax for the year must be figured in two parts and added together. First, compute the normal tax on income after subtracting the farm or fishing income they chose. Second, add the extra tax that would result if each of the three prior tax years had their taxable income increased by one‑third of that chosen farm or fishing income. "Elected farm income" means the part of that year's taxable income that comes from the farming or fishing business and that the taxpayer names in the choice. Sale gains from business property (not land) used for a long time count as that income. An "individual" does not include estates or trusts. The words "farming business" and "fishing business" use the federal definitions in the cited laws. The Treasury must write rules about how to apply income, gains, losses, limits, and how to handle short tax years.
Full Legal Text
Title 26, §1301
Internal Revenue Code — Source: USLM XML via OLRC
(a)At the election of an individual engaged in a farming business or fishing business, the tax imposed by section 1 for such taxable year shall be equal to the sum of—
(1)a tax computed under such section on taxable income reduced by elected farm income, plus
(2)the increase in tax imposed by section 1 which would result if taxable income for each of the 3 prior taxable years were increased by an amount equal to one-third of the elected farm income.
(b)In this section—
(1)(A)The term “elected farm income” means so much of the taxable income for the taxable year—
(i)which is attributable to any farming business or fishing business; and
(ii)which is specified in the election under subsection (a).
(B)For purposes of subparagraph (A), gain from the sale or other disposition of property (other than land) regularly used by the taxpayer in such a farming business or fishing business for a substantial period shall be treated as attributable to such a farming business or fishing business.
(2)The term “individual” shall not include any estate or trust.
(3)The term “farming business” has the meaning given such term by section 263A(e)(4).
(4)The term “fishing business” means the conduct of commercial fishing as defined in section 3 of the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. 1802).
(c)The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations regarding—
(1)the order and manner in which items of income, gain, deduction, or loss, or limitations on tax, shall be taken into account in computing the tax imposed by this chapter on the income of any taxpayer to whom this section applies for any taxable year, and
(2)the treatment of any short taxable year.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Prior Provisions
A prior section 1301, added Pub. L. 88–272, title II, § 232(a), Feb. 26, 1964, 78 Stat. 106; amended Pub. L. 91–172, title III, § 311(a), Dec. 30, 1969, 83 Stat. 586; Pub. L. 98–369, div. A, title I, § 173(b), (c)(1),
July 18, 1984, 98 Stat. 704, placed a limit on the tax attributable to averagable income, prior to repeal by Pub. L. 99–514, title I, §§ 141(a), 151(a), Oct. 22, 1986, 100 Stat. 2117, 2121, effective Dec. 31, 1986. Another prior section 1301, act Aug. 16, 1954, ch. 736, 68A Stat. 334, related to compensation from an employment, defined “an employment”, and stated the rule with respect to partners, prior to the general revision of this part by Pub. L. 88–272. A prior section 1302, added Pub. L. 88–272, title II, § 232(a), Feb. 26, 1964, 78 Stat. 106; amended Pub. L. 91–172, title III, § 311(b), Dec. 30, 1969, 83 Stat. 586; Pub. L. 94–455, title VII, § 701(f)(1), Oct. 4, 1976, 90 Stat. 1580; Pub. L. 95–30, title I, § 102(b)(15),
May 23, 1977, 91 Stat. 138; Pub. L. 95–600, title I, § 101(d)(2), Nov. 6, 1978, 92 Stat. 2770; Pub. L. 95–615, § 202(g)(5), formerly § 202(f)(5), Nov. 8, 1978, 92 Stat. 3100, renumbered Pub. L. 96–222, title I, § 108(a)(1)(A), Apr. 1, 1980, 94 Stat. 223; Pub. L. 97–34, title I, § 111(b)(3), Aug. 13, 1981, 95 Stat. 194; Pub. L. 97–248, title II, § 265(b)(2)(B), Sept. 3, 1982, 96 Stat. 547; Pub. L. 98–369, div. A, title I, § 173(a), (c)(2)–(4),
July 18, 1984, 98 Stat. 703, 704, defined “averagable income” and other terms related to income averaging, prior to repeal by Pub. L. 99–514, title I, §§ 141(a), 151(a), Oct. 22, 1986, 100 Stat. 2117, 2121, effective Dec. 31, 1986. Another prior section 1302, act Aug. 16, 1964, ch. 736, 68A Stat. 335, related to income from an invention or artistic work, prior to the general revision of this part by Pub. L. 88–272. A prior section 1303, added Pub. L. 88–272, title II, § 232(a), Feb. 26, 1964, 78 Stat. 107; amended Pub. L. 91–172, title III, § 311(d)(1), Dec. 30, 1969, 83 Stat. 587; Pub. L. 94–455, title XIX, § 1901(b)(8)(G), Oct. 4, 1976, 90 Stat. 1795; Pub. L. 97–34, title I, § 111(b)(4), Aug. 13, 1981, 95 Stat. 194; Pub. L. 99–272, title XIII, § 13206(a), (b), Apr. 7, 1986, 100 Stat. 318, 319, related to individuals eligible for income averaging, prior to repeal by Pub. L. 99–514, title I, §§ 141(a), 151(a), Oct. 22, 1986, 100 Stat. 2117, 2121, effective Dec. 31, 1986. Another prior section 1303, acts Aug. 16, 1954, ch. 736, 68A Stat. 335, Sept. 22, 1961, Pub. L. 87–293, title II, § 201(b), 75 Stat. 625, related to income from back pay, prior to the general revision of this part by Pub. L. 88–272. A prior section 1304, added Pub. L. 88–272, title II, § 232(a), Feb. 26, 1964, 78 Stat. 108; amended Pub. L. 91–172, title III, § 311(c), (d)(2), title V, § 515(c)(4), title VIII, §§ 802(c)(5), 803(d)(8), Dec. 30, 1969, 83 Stat. 587, 646, 678, 684; Pub. L. 93–406, title II, § 2005(c)(6), Sept. 2, 1974, 88 Stat. 991; Pub. L. 94–455, title III, § 302(c), title V, § 501(b)(7), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1555, 1559, 1834; Pub. L. 95–600, title IV, § 401(b)(5), Nov. 6, 1978, 92 Stat. 2867; Pub. L. 95–615, § 202(g)(5), formerly § 202(f)(5), Nov. 8, 1978, 92 Stat. 3100, renumbered Pub. L. 96–222, title I, § 108(a)(1)(A), Apr. 1, 1980, 94 Stat. 223; Pub. L. 97–34, title I, §§ 101(c)(2)(B), 111(b)(3), (4), Aug. 13, 1981, 95 Stat. 183, 194; Pub. L. 97–248, title II, § 265(b)(2)(C), Sept. 3, 1982, 96 Stat. 547, set out special rules for income averaging, prior to repeal by Pub. L. 99–514, title I, §§ 141(a), 151(a), Oct. 22, 1986, 100 Stat. 2117, 2121, effective Dec. 31, 1986. Another prior section 1304, act Aug. 11, 1955, ch. 804, § 1(a), 69 Stat. 688, related to compensatory damages for patent infringement, prior to the general revision of this part by Pub. L. 88–272. A prior section 1305, added Pub. L. 88–272, title II, § 232(a), Feb. 26, 1964, 78 Stat. 110; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, provided for promulgation of
Regulations
for income averaging, prior to repeal by Pub. L. 99–514, title I, §§ 141(a), 151(a), Oct. 22, 1986, 100 Stat. 2117, 2121, effective Dec. 31, 1986. Another prior section 1305, act Aug. 26, 1957, Pub. L. 85–165, § 1, 71 Stat. 413, related to damages for breach of contract or fiduciary duty, prior to the general revision of this part by Pub. L. 88–272. A prior section 1306, Pub. L. 85–866, title I, § 58(a), Sept. 2, 1958, 72 Stat. 1646, related to damages received for injuries under the antitrust laws, prior to the general revision of this part by Pub. L. 88–272. A prior section 1307, act Aug. 16, 1954, ch. 736, 68A Stat. 336, § 1307, formerly § 1304; renumbered § 1305, Aug. 11, 1955, ch. 804, § 1(a), 69 Stat. 688; renumbered § 1306, Aug. 26, 1957, Pub. L. 85–165, § 1, 71 Stat. 413; renumbered § 1307, Sept. 2, 1958, Pub. L. 85–866, title I, § 58(a), 72 Stat. 1646; amended Oct. 16, 1962, Pub. L. 87–834, § 22(a), 76 Stat. 1064, provided rules applicable to this part, prior to the general revision of this part by Pub. L. 88–272.
Amendments
2004—Subsec. (a). Pub. L. 108–357, § 314(b)(1), substituted “farming business or fishing business” for “farming business” in introductory provisions. Subsec. (b)(1)(A)(i), (B). Pub. L. 108–357, § 314(b)(2), inserted “or fishing business” after “farming business” wherever appearing. Subsec. (b)(4). Pub. L. 108–357, § 314(b)(3), added par. (4).
Statutory Notes and Related Subsidiaries
Effective Date
of 2004 AmendmentAmendment by Pub. L. 108–357 applicable to taxable years beginning after Dec. 31, 2003, see section 314(c) of Pub. L. 108–357, set out as an Effective and Termination Dates of 2004
Amendments
note under section 55 of this title.
Effective Date
Pub. L. 105–34, title IX, § 933(c), Aug. 5, 1997, 111 Stat. 882, as amended by Pub. L. 105–277, div. J, title II, § 2011, Oct. 21, 1998, 112 Stat. 2681–902, provided that: “The
Amendments
made by this section [enacting this section] shall apply to taxable years beginning after December 31, 1997.”
Reference
Citations & Metadata
Citation
26 U.S.C. § 1301
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73