26 U.S.C. § 175 — Soil and water conservation expenditures; endangered species recovery expenditures

(a) In general: A taxpayer in the business of farming may treat spending during the tax year for soil or water conservation, preventing erosion, or endangered species recovery on farmland as an expense instead of a capital cost. This spending can be deducted. (b) Limitation: The deduction under (a) cannot be more than 25% of the taxpayer's gross income from farming that year. If total qualifying spending is more than 25% of that year's farm income, the extra amount carries forward to later years, in order. But even in a later year, the total deduction (carried-over amount plus new spending) still can't exceed 25% of that year's farm income. (c) Definitions: (1) The term covers spending on treating or moving earth — like leveling, grading, terracing, contour furrowing, building or protecting diversion channels, drainage ditches, earthen dams, watercourses, outlets, and ponds, clearing brush, and planting windbreaks. It also includes spending on specific actions recommended in an approved endangered species recovery plan under the Endangered Species Act of 1973. It does not include: (A) buying, building, installing, or improving structures, appliances, or facilities that qualify for a depreciation deduction under section 167, or (B) any amount already deductible under some other rule without needing this section. Despite those exclusions, the term does include amounts (not otherwise deductible) paid to cover part of an assessment from a soil, water conservation, or drainage district, if that assessment money either (i) would itself be deductible under this section if the taxpayer spent it directly, or (ii) pays for depreciable property used in the district's conservation business — but only up to the point where the taxpayer's share of that assessment is 10% or less of the total assessment on all district members. (2) "Land used in farming" means land the taxpayer or their tenant used — before or at the same time as the spending — to grow crops, fruit, or other farm products, or to support livestock. (3) Additional limitations: (A) The spending must match either an approved Soil Conservation Service plan, an approved endangered species recovery plan, or — if neither exists — a comparable state agency's soil conservation plan. (B) The deduction does not apply to spending on draining or filling wetlands, or preparing land for center-pivot irrigation systems. (d) When method may be adopted: (1) Without consent: A taxpayer can start using this method, without needing IRS permission, in the first year they have qualifying expenses. (2) With consent: A taxpayer can start using this method at any other time, if the IRS agrees. (e) Scope: Once adopted, the method applies to all qualifying spending. The taxpayer must keep using it for that year and future years unless the IRS approves a change for some or all of the spending. (f) Rules for assessments on depreciable property: (1) Spreading large assessments over 9 years: If an assessment for depreciable district property (described in (c)(1)) that the taxpayer pays in a year is more than 10% of the total amount the taxpayer will ever be assessed for that property, and the excess is over $500, that excess amount is instead treated as paid evenly over the next 9 years. (2) Selling the land during that 9-year period: If the taxpayer sells or otherwise gives up the land (other than by dying) during the 9-year spread, any part of the excess not yet counted as paid gets added to the land's tax basis right before the sale, instead of continuing to spread out. (3) Death during the 9-year period: If the taxpayer dies during the 9-year spread, any part of the excess not yet counted as paid is treated as paid entirely in the year the taxpayer died.