Pond construction - Sch F

[spt]

Can a pond be depreciated on a Schedule F? Under soil and water conservation expenses it appears that this should be added to the basis of the land unless for erosion purposes or conservation reasons. Anyone have done this differently? Client is looking to take a $28,800 deduction and I need to have my ducks in a row when talking with her.

[spanel]

What does the client do for "Farm Income"?

Would it ever justify a $29,000 pond?

Chris

[spt]

started 3-4 years raising cattle

A small cattle farmer in rural area. They both have other jobs. The income from sales for this year was $3253.00. Just getting to the stage of selling calves that are produced each year.

[Gene V]

I would think this is probably capital expense, however, if it is consider Soil and Water Conservation expense, your deduction cannot be more than 25% of your gross income from farming.

See Pub. 225, page 27

[RitaB]

Useful Life

Can a pond be depreciated on a Schedule F? Under soil and water conservation expenses it appears that this should be added to the basis of the land unless for erosion purposes or conservation reasons. Anyone have done this differently? Client is looking to take a $28,800 deduction and I need to have my ducks in a row when talking with her.

Usually, when somebody says "gray area," I think: "Your prior accountant just didn't want to study and find out the truth." This, however, really may be a gray area.

I grew up on a farm, and it is still in operation. I am currently rebuilding two earthen pond dams. They do wear out, especially with livestock walking over them. Pub 225 says earthen dams are "generally" not depreciable "unless" you can determine the useful life. I have depreciated pond dams for clients that really appeared to be operating a farm and not just fishing or writing off their feed for the cow they were raising for personal consumption. I guess this might be considered aggressive treatment, but I know that dams don't last forever, and I am comfortable with depreciating them when the farmer is really in business and not just trying to deduct hobby expenses and the cost of groceries (Betsy).

I have used 15 years as the class life of a pond dam for a couple of "real" farmers I have. Now, of course, it may last longer. Just like your computer that you set up for five years. It may crap out after two years, or last seven years. Or your Sears toolbox may make it 30 years, not seven. Your residential rental may make it 50 years, not 27.5. So, it does not worry me that I don't know exactly how long the pond dam will last. I would not go shorter than 15 years, just based on personal experience and observation.

[Nashville]

Section 1252

I think the pond is a section 1252 asset.

Simply put, the expenditure is an expense subject to perhaps the 25% limit discussed above. However, after being expensed, if the owner sells or disposes of the land, he has to totally recapture the amount of section 1252 expense.

Another thing that should most likely enter into the facts and circumstances of the original post: Can anyone make a case for this $29,000 being totally allocated to farm when the farm operation is minimal by comparison?

If the Sch F shows $3200 in sales of cattle, and they are calves, this is most likely a sale of appx 10 calves. If there are also 10 mother cattle and a bull, this can be supported on 35 acres of pasture, and more if they live in a drier climate, certainly not less except with extreme measures such as heavy fertilizer. If the owner has 100 acres, much of which he is not utilizing, I allocate only a portion of many expenses to the farm. I do allocate to timber if there is any, and also to personal even if this results in a non-deductible expense.