Publication 225 |
2000 Tax Year |
Conservation Expenses
Deductible conservation expenses are those made for land you or
your tenant are using, or have used in the past, for farming. They
include, but are not limited to, expenses for the following.
Table 6-1
- The treatment or movement of earth, such as:
- Leveling,
- Conditioning,
- Grading,
- Terracing,
- Contour furrowing, and
- Restoration of soil fertility.
- The construction, control, and protection of:
- Diversion channels,
- Drainage ditches,
- Irrigation ditches,
- Earthen dams, and
- Watercourses, outlets, and ponds.
- The eradication of brush.
- The planting of windbreaks.
Exceptions.
Expenses to drain or fill wetlands, or for center pivot irrigation
systems, are not deductible as soil and water conservation
expenses. These expenses are added to the basis of the land.
If you choose to deduct soil and water conservation expenses, you
cannot exclude from gross income any cost-sharing payments you receive
for those expenses. See chapter 4
for information about excluding
cost-sharing payments.
New farm or farm land.
If you acquire a new farm or new farm land from someone who was
using it in farming immediately before you acquired the land, soil and
water conservation expenses you incur on it will be treated as made on
land used in farming at the time the expenses were paid. You can
deduct soil and water conservation expenses for this land if your use
of it is substantially a continuation of its use in farming. The new
farming activity does not have to be the same as the old farming
activity. For example, if you buy land that was used for grazing
cattle and then prepare it for use as an apple orchard, the expenses
will qualify.
Land not used for farming.
If your conservation expenses benefit both land that does not
qualify as land used for farming and land that does qualify, you must
allocate the expenses. For example, if the expenses benefit 200 acres
of your land, but only 120 acres of this land are used for farming,
then 60% (120 x 200) of the expenses are deductible. You can
use another method to allocate these expenses if you can clearly show
that your method is more reasonable.
Depreciable conservation assets.
You cannot deduct your expenses for depreciable conservation
assets. There is, however, an exception for an assessment for
depreciable property that a soil and water conservation or drainage
district levies against your farm. See Assessment for Depreciable
Property, later.
You must capitalize direct expenses for structures or facilities
subject to an allowance for depreciation, such as depreciable
nonearthen property made of masonry or concrete. Expenses for
depreciable property include those for materials, supplies, wages,
fuel, hauling, and moving dirt when making structures such as tanks,
reservoirs, pipes, culverts, canals, dams, wells, or pumps composed of
masonry, concrete, tile, metal, or wood. You recover your capital
investment through annual allowances for depreciation.
However, soil and water conservation expenses for nondepreciable
earthen items such as earthen terraces and dams are deductible.
Water well.
The cost of drilling a water well for irrigation and other
agricultural purposes is a capital expense and not
deductible as a soil and water conservation expense. You recover
your cost through depreciation. You must also capitalize your cost for
drilling a test hole. If the test hole produces no water and you
continue drilling, the cost of the test hole is added to the cost of
the producing well. You can recover the total cost through
depreciation deductions.
If a test hole, dry hole, or dried-up well (resulting from
prolonged lack of rain, for instance) is abandoned, you can deduct
your unrecovered cost in the year of abandonment. Abandonment means
that all economic benefits from the well are terminated. For example,
filling or sealing a well excavation or casing so that all economic
benefits from the well are terminated would be abandonment.
Previous| First | Next
Publication Index | IRS-Forms Main | Home
|