Center Pivot Irrigation Expenses

[LindaK]

My clients are considering installing irrigation on a quarter of land. According to Pub 225, Irrigation systems and water wells can be depreciated if their useful life can be determined. Pub. 946 says land improvements are 15-year MACRS. Couldn't find anything regarding S179, so that looks like a no.

Am I missing something? I sure don't want to tell them one thing and find out too late that it was inaccurate.

Thanks

[Roland Slugg]

Hello Linda. The body of your post doesn't seem to match the subject in the title box. Seems to me that center-pivot watering equipment would be depreciable the same as most other equipment ... probably 7-years. I did a quick review of the MACRS classes and didn't see any special category for that.

If the irrigation system is something else, such as a set of pumps and pipes emanating from one or more wells, that might be classified as "land improvements," but it might be equipment just like an above ground, migrating system. "Land improvements" normally refers to parking lots, fences, landscaping, walkways ... things like that. As for the well(s) I plead ignorance. Your guess is as good as mine ... probably better.

[Black Bart]

First,

you're looking in the wrong book. Google up Publication 225 (Farmer's Tax Guide) and look at page 43 (Farm Property Recovery Periods).

While I've never been able to find a specific mention of center pivots, to me they're just another piece of equipment like the rest of the stuff and I've been writing them off in seven years for the last 20 years. IRS hasn't squawked yet, so that's good enough for me. Of course we'd really like to know so we can assure our clients that it's so, but I haven't yet found it specifically mentioned in any book and it's almost impossible to find an IRS rep knowlegeable about this sort of stuff. Probably somebody will walk up someday and say "You've been doing it wrong for 20 years," but...such is life, as the old man used to say.

Water wells? Well (pun intended), page 43 says 15 years, but gosh, that's such a looooonng time and some clients will die first. Asked an IRS seminar speaker once and he said that, theoretically, you could divide the cost of the pipes and pump into seven year machinery (and 179 it) and the balance to 15 year labor. He didn't say what his bosses would think about that (I'm pessimistic), but anyway it seemed like too much trouble so I'm using 15 (but have sevened a few and they sailed right through). While that's not to be recommended, it's somewhat comforting to know that nobody's minding the IRS store on detail depreciation sheets -- you could list a white elephant at three years without raising an eyebrow; nothing's matched to the "F" total.

About the "land improvements" -- some of this stuff (e.g., land-leveling, grading, ditch-digging, dirt dams, pine tree windbreaks, brush-clearing) is deductible rather than depreciable and can be written off in the year it's done (see "Conservation Expenses - page 28).

Anyway, read the pub. It's got some other good info in it if you want to create the aura of a "farm guru."

Good luck

[Jiggers]

I have always used 15 years for a well.

I don't have any with irrigation equipment, but I would use 7 years since it isn't specified in any other category.

The irrigation systems that I have seen would be considered equipment and not land improvements.

[LindaK]

It sounds like I was too conservative in my first thoughts. In Pub 225 irrigation systems are in the same sentence with water wells, so I thought they would be depreciated the same way,but now I think that may refer to irrigation ditches etc.

Pub 225, pg 28 (Soil and Conservation Expenses) states "You cannot deduct expenses to drain or fill wet* lands, or to prepare land for center pivot irriga*tion systems, as soil and water conservation ex*penses. These expenses are added to the basis of the land."

So land expenses are capitalized; well expenses (if any) are 15 year MACRS, and the equipment for the pivot would be 7-year and also eligible for S179.

I appreciate your input!