Section 180 Deduction for Soil and Water Conservation

A tax deduction, outlined in Section 175 of the Internal Revenue Code, is available to farmers for expenses related to soil and water conservation. This provision allows a current-year deduction for certain land improvement costs that would otherwise be capitalized. By incentivizing these investments, the tax code supports practices that prevent land degradation and preserve the long-term productivity of agricultural operations. This deduction lowers the taxable income for farmers who undertake these conservation efforts.

Determining Farmer Eligibility

To qualify for this deduction, an individual or entity must be in the “business of farming.” The Internal Revenue Service (IRS) defines this as cultivating, operating, or managing a farm with the intent to make a profit. This includes landowners and tenants who are actively engaged in farming operations.

The IRS considers various operations as farms for this purpose. These include stock, dairy, poultry, fish, fruit, and truck farms. Additionally, plantations, ranches, ranges, orchards, and plant nurseries fall under this classification. Activities considered hobbies or farming for recreation without a profit motive do not qualify, and forestry and timber growing are also excluded from the definition of farming for this specific deduction.

Eligibility extends to individuals, partnerships, and corporations engaged in the business of farming. The taxpayer must be the one incurring the conservation expenses on land they are using for farming. This ensures the tax benefit is directed to those actively involved in the agricultural production that the conservation efforts support.

Identifying Qualifying Conservation Expenditures

The deduction applies to expenditures for soil and water conservation on land used in farming. These are expenses that would normally be added to the land’s cost basis but are allowed as a current deduction. Qualifying costs include the treatment or movement of earth, such as leveling, grading, terracing, and contour furrowing, which help control water runoff and prevent soil erosion.

Construction and maintenance of certain water management structures are also eligible, including the building of drainage ditches, irrigation ditches, and earthen dams. The planting of windbreaks to protect soil from wind erosion and the cost of eradicating brush on productive land are other qualifying expenses.

Expenditures must be consistent with a conservation plan approved by the Natural Resources Conservation Service (NRCS) of the Department of Agriculture or a comparable state agency. If a farmer does not have an NRCS-approved plan, a plan from a state conservation agency may suffice. This ensures the deducted expenses are for legitimate conservation purposes.

Assessments from a soil and water conservation or drainage district may also be deductible if the assessment covers expenses that the farmer could have deducted if paid directly. However, expenses for draining or filling wetlands or preparing land for center pivot irrigation systems are not deductible under this provision.

Calculating the Deduction Limit

The amount of the soil and water conservation deduction taken in a single tax year is limited. A farmer can deduct qualifying expenses up to an amount that does not exceed 25% of their gross income from farming for that year. This cap prevents the deduction from excessively reducing a farmer’s tax liability.

For this calculation, “gross income from farming” includes the income generated from the sale of crops, livestock, and other agricultural products. Certain government payments related to farming are also included. It does not, however, include gains from the sale of assets used in the farm business, such as farm machinery, equipment, or land.

If a farmer’s total qualifying conservation expenditures in a year exceed the 25% limit, the excess amount is not lost. The tax code provides a carryover provision for these unused expenses. Any amount that cannot be deducted in the current year can be carried forward to the following tax year and added to that year’s conservation expenses, subject to the same 25% limit. This carryover can continue indefinitely until the full amount has been deducted.

Claiming the Deduction on Your Tax Return

Farmers must properly report the deduction on their annual tax return. Soil and water conservation expenses are claimed on Schedule F (Form 1040), Profit or Loss From Farming. This schedule is the standard form used by sole proprietor farmers to report their farm income and expenses to the IRS.

The deduction is entered on line 12 of Schedule F, titled “Conservation expenses.” The total calculated deduction for the year, up to the 25% gross income limit, should be reported on this line. It is important to maintain detailed records of the expenses and the limit calculation.

A statement detailing the conservation expenses must be attached to the tax return for the first year these expenses are claimed. The election to deduct these expenses is made by claiming the deduction on the tax return. Once made, this election cannot be revoked without obtaining consent from the IRS.