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3sth-
New Member

We had a large expense on our farm rental property due to major erosion; the expense is 5x the income. How do we deduct the expense? Take all expense on this year's taxes or over a period of years?

Do we need to 1099 the excavator who performed the work?
1 Reply
Cattlerancher
New Member

We had a large expense on our farm rental property due to major erosion; the expense is 5x the income. How do we deduct the expense? Take all expense on this year's taxes or over a period of years?

 This is some information that may apply to your Conservation Expenses. Most if it is from IRS pub. 225, page 27. I have attached a link for you blow;

https://www.irs.gov/pub/irs-pdf/p225.pdf

Conservation Expenses You can deduct conservation expenses only for land you or your tenant are using, or have used in the past, for farming. These expenses include, but are not limited to, the following.

1. The treatment or movement of earth, such as: a. Leveling, b. Conditioning, c. Grading, d. Terracing, e. Contour furrowing, and f. Restoration of soil fertility.

2. The construction, control, and protection of: a. Diversion channels; b. Drainage ditches; c. Irrigation ditches; d. Earthen dams; and e. Watercourses, outlets, and ponds.

3. The eradication of brush.

4. The planting of windbreaks.

You can't deduct expenses to drain or fill wetlands, or to prepare land for center pivot irrigation systems, 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 must include as gross income any cost-sharing payments you receive for those expenses. See chapter 3 for information about payments eligible for the cost-sharing exclusion.

You must capitalize expenses to buy, build, install, or improve depreciable structures or facilities. These expenses 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 (including drainage tile), metal, or wood. You recover your capital investment through annual allowances for depreciation.

You can deduct soil and water conservation expenses for nondepreciable earthen items. Nondepreciable earthen items include certain dams, ponds, and terraces described under Property Having a Determinable Useful Life in chapter 7.

Property Having a Determinable Useful Life

To be depreciable, your property must have a determinable useful life. This means it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes.

Irrigation systems and water wells. Irrigation systems and wells used in a trade or business can be depreciated if their useful life can be determined. You can depreciate irrigation systems and wells composed of masonry, concrete, tile (including drainage tile), metal, or wood. In addition, you can depreciate costs for moving dirt to construct irrigation systems and water wells composed of these materials. However, land preparation costs for center pivot irrigation systems are not depreciable.

Dams, ponds, and terraces. In general, you cannot depreciate earthen dams, ponds, and terraces unless the structures have a determinable useful life.

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