Conservation Expenses Deductible conservation expenses are those made for land that youor your tenant are using, or have used in the past, for farming. Theyinclude, but are not limited to expenses for the following. Table 6-1 The treatment or movement of earth, such as: Leveling, Conditioning, Grading, Terracing, Contour furrowing, and Restoration of soil fertility. The construction, control, and protection of: Diversion channels, Drainage ditches, Irrigation ditches, Earthen dams, and Watercourses, outlets, and ponds. The eradication of brush. The planting of windbreaks. Caution: If you choose to deduct soil and water conservation expenses, youcannot exclude from gross income any cost-sharing payments you receivefor those expenses. See chapter 4for information about excludingcost-sharing payments. New farm or farm land.If you acquire a new farm or new farm land from someone who wasusing it in farming immediately before you acquired the land, soil andwater conservation expenses you make on it will be treated as made onland used in farming at the time the expenses were paid. You candeduct soil and water conservation expenses for this land if your useof it is substantially a continuation of its use in farming. The newfarming activity does not have to be the same as the old farmingactivity. For example, if you buy land that was used for grazingcattle and then prepare it for use as an apple orchard, the expenseswill qualify. Land not used for farming.If your conservation expenses benefit both land that does notqualify as land used for farming and land that does qualify, you mustallocate the expenses. For example, if the expenses benefit 200 acresof your land, but only 120 acres of this land are used for farming,then 60% (120 200) of the expenses are deductible. You canuse another method to allocate these expenses if you can clearly showthat your method is more reasonable. Wetlands.Expenses to drain or fill wetlands are not deductible assoil and water conservation expenses. These expenses are added to thebasis of the land. Center pivot irrigation.Expenses to prepare land for center pivot irrigation systems arenot deductible as soil and water conservation expenses.These expenses are added to the basis of the land. Depreciable conservation assets.You cannot deduct your expenses for depreciable conservationassets. There is, however, an exception for an assessment fordepreciable property that a soil and water conservation or drainagedistrict levies against your farm. See Assessment for DepreciableProperty, later. You must capitalize direct expenses for structures or facilitiessubject to an allowance for depreciation, such as depreciablenonearthen items made of masonry or concrete. Expenses for depreciableproperty include those for materials, supplies, wages, fuel, hauling,and moving dirt when making structures such as tanks, reservoirs,pipes, conduits, canals, dams, wells, or pumps composed of masonry,concrete, tile, metal, or wood. You recover your capital investmentthrough annual allowances for depreciation. However, soil and water conservation expenses for nondepreciableearthen items such as earthen terraces and dams are deductible. Water well.The cost of drilling a water well for irrigation and otheragricultural purposes is a capital expense and notdeductible as a soil and water conservation expense. You recoveryour cost through depreciation. You must also capitalize your cost fordrilling a test hole. If the test hole produces no water and youcontinue drilling, the cost of the test hole is added to the cost ofthe producing well. You can recover the total cost throughdepreciation deductions. If a test hole, dry hole, or dried-up well (resulting fromprolonged lack of rain, for instance) is abandoned, you can deductyour unrecovered cost in the year of abandonment. Abandonment meansthat all economic benefits from the well are terminated. For example,filling or sealing a well excavation or casing so that all economicbenefits from the well are terminated would be abandonment.