Agriculture
Income Tax Information - Soil and Water Conservation
If you are in the business of farming, you can
choose to currently deduct your expenses for soil or water conservation or for
the prevention of erosion of land used in farming. Otherwise, these are capital
expenses that must be added to the basis of the land. Conservation expenses for
land in a foreign country do not qualify for this special treatment. The
deduction cannot be more than 25% of your gross income from farming.
Plan Certification
You can deduct your expenses for soil and water
conservation only if they are consistent with a plan approved by the Natural
Resources Conservation Service (NRCS) of the Department of Agriculture. If no
such plan exists, the expenses must be consistent with a soil conservation plan
of a comparable state agency to be deductible. Keep a copy of the plan with your
books and records as part of the support for your deductions.
Choosing To Deduct
You can choose to deduct soil and water conservation
expenses on your tax return for the first year you pay or incur these expenses.
If you choose to deduct them, you must deduct the total allowable amount in the
year they are paid or incurred. If you do not deduct the expenses, you must
capitalize them.
Note: If you receive cash rental
for a farm you own that is not used in farm production, you can not claim soil
and water conservation expenses for that farm. These costs must be capitalized
into the land basis.
Example:
You own a farm in Iowa and live in California. You
rent the farm for $125 in cash per acre and do not materially participate in
producing or managing production of the crops grown on the farm. You cannot
deduct your soil conservation expenses for this farm. You must capitalize the
expenses and add them to the basis of the land.
Additional Resources
Soil and Water Conservation Expenses of
Publication 225
USDA Natural Resources Conservation Service
