Tax incentives for soil and water conservation
Published 8:26 am Wednesday, November 15, 2023
By James L. Cummins
For many of Mississippi’s farmers, good stewardship of the land is especially important. By applying sound conservation practices, farmers help control and prevent erosion and increase soil fertility which corresponds to better wildlife habitat, cleaner rivers and streams, and more productive farmland.
To assist with the cost of practices aimed at improving soil and water quality on agricultural lands, the Internal Revenue Service (IRS) allows for the deduction of certain expenses for soil and water conservation or for the prevention of erosion on lands used for farming.
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However, the IRS does not allow for the deduction of ordinary and necessary expenses such as interest and taxes, cost of periodically clearing brush from productive land, annual removal of sediment from drainage ditches, and any other expenses paid or incurred to produce an agricultural crop.
According to the IRS, a person is considered a farmer if that person cultivates, operates, or manages a farm for profit, either as owner or tenant. A person is not considered to be farming if he or she farms for recreation or pleasure and not for profit. Also, forestry and/or the growing of trees are not considered farming by the IRS.
A farm is defined by the IRS as including stock, dairy, poultry, fish, fruit, and truck farms. Plantations, ranches, ranges, and orchards are also included. A plant nursery is a farm for the purposes of deducting soil and water conservation expenses.
The IRS allows for the deduction of soil and water conservation practices only if they are consistent with a plan approved by the Natural Resources Conservation Service (NRCS).
If the farmer does not have a plan from the NRCS, then a plan from a comparable state agency can be used. Individual site plans and county plans can be obtained by contacting your local NRCS office.
Expenses that are incurred by a farmer for soil and water conservation are deductible only for lands owned by the farmer or the tenant that is using the land for farming.
The expenses that qualify for deduction include treatment or movement of earth (leveling, conditioning, grading, terracing, contour furrowing, and restoration of soil fertility) and construction, control, and protection of diversion channels, drainage ditches, irrigation ditches, earthen dams, and watercourses, outlets, and ponds.
A person cannot deduct expenses for soil and water conservation for draining or filling in a wetland or to prepare land for center pivot irrigation systems.
In some cases, landowners are levied an assessment for soil and water conservation practices conducted by the area soil and water or drainage district.
These expenses are also deducible as a conservation expense if they cover expenses you could deduct if you had paid them directly or covers expenses for depreciable property used in the district’s business.
Types of depreciable property include pumps, locks, concrete structures (including dams and weir gates), draglines, and similar equipment.
For more detailed information go to the IRS website at www.irs.gov.
James L. Cummins is executive director of Wildlife Mississippi, a non-profit, conservation organization founded to conserve, restore and enhance fish, wildlife, and plant resources throughout Mississippi. Their website is www.wildlifemiss.org.