§175 Soil and Water Conservation Expenditures; Endangered Species Recovery Expenditures

Summary

Farmers can deduct money they spend during the year to conserve soil or water, prevent erosion, or help endangered species recovery as normal business expenses instead of treating them as long‑term capital costs. Each year the deductible amount can’t be more than 25 percent of the farm’s gross income. Any extra amount over 25 percent can be carried forward and deducted in later years, but each later year is also limited to 25 percent of that year’s farm gross income (including new expenses). Covered expenses include work that moves or treats earth (like leveling, grading, terracing, building diversion channels, drainage ditches, earthen dams, ponds, and similar items), removing brush, planting windbreaks, and site‑specific actions in approved endangered species recovery plans. The rule does not cover buying or installing things that are depreciable or amounts already deductible by other rules. Expenses must follow a plan approved by the Soil Conservation Service, an approved recovery plan, or a comparable State plan. Draining or filling wetlands and preparing land for center‑pivot irrigation are not allowed. A farmer can start using this method in the first year such expenses happen without IRS permission, or later with IRS permission, and the chosen method must be used for all such expenses unless the IRS approves a change. If an assessment for certain work is unusually large (more than 10 percent of the total assessments and over $500), the extra amount is spread evenly over the next 9 years; if the land is sold during those years the remaining spread amount is added to the land’s basis, and if the farmer dies the remaining amount is deducted in the year of death.