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1040 es 5. 1040 es   Soil and Water Conservation Expenses Table of Contents Introduction Topics - This chapter discusses: Business of Farming Plan Certification Conservation ExpensesWater well. 1040 es Assessment by Conservation DistrictAssessment for Depreciable Property 25% Limit on DeductionNet operating loss. 1040 es When to Deduct or Capitalize Sale of a Farm Introduction If you are in the business of farming, you can choose to deduct certain expenses for: Soil or water conservation, Prevention of erosion of land used in farming, or Endangered species recovery. 1040 es Otherwise, these are capital expenses that must be added to the basis of the land. 1040 es (See chapter 6 for information on determining basis. 1040 es ) Conservation expenses for land in a foreign country do not qualify for this special treatment. 1040 es The deduction for conservation expenses cannot be more than 25% of your gross income from farming. 1040 es See 25% Limit on Deduction , later. 1040 es Although some expenses are not deductible as soil and water conservation expenses, they may be deductible as ordinary and necessary farm expenses. 1040 es These include interest and taxes, the cost of periodically clearing brush from productive land, the regular removal of sediment from a drainage ditch, and expenses paid or incurred primarily to produce an agricultural crop that may also conserve soil. 1040 es You must include in income most government payments for approved conservation practices. 1040 es However, you can exclude some payments you receive under certain cost-sharing conservation programs. 1040 es For more information, see Agricultural Program Payments in chapter 3. 1040 es To get the full deduction to which you are entitled, you should maintain your records to clearly distinguish between your ordinary and necessary farm business expenses and your soil and water conservation expenses. 1040 es Topics - This chapter discusses: Business of farming Plan certification Conservation expenses Assessment by conservation district 25% limit on deduction When to deduct or capitalize Sale of a farm Business of Farming For purposes of soil and water conservation expenses, you are in the business of farming if you cultivate, operate, or manage a farm for profit, either as an owner or a tenant. 1040 es You are not in the business of farming if you cultivate or operate a farm for recreation or pleasure, rather than for profit. 1040 es You are not farming if you are engaged only in forestry or the growing of timber. 1040 es Farm defined. 1040 es   A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. 1040 es It also includes plantations, ranches, ranges, and orchards. 1040 es A fish farm is an area where fish and other marine animals are grown or raised and artificially fed, protected, etc. 1040 es It does not include an area where they are merely caught or harvested. 1040 es A plant nursery is a farm for purposes of deducting soil and water conservation expenses. 1040 es Farm rental. 1040 es   If you own a farm and receive farm rental payments based on farm production, either in cash or crop shares, you are in the business of farming. 1040 es If you get cash rental for a farm you own that is not used in farm production, you cannot deduct soil and water conservation expenses for that farm. 1040 es   If you receive a fixed rental payment that is not based on farm production, you are in the business of farming only if you materially participate in operating or managing the farm. 1040 es Example. 1040 es You own a farm in Iowa and live in California. 1040 es You rent the farm for $175 in cash per acre and do not materially participate in producing or managing production of the crops grown on the farm. 1040 es You cannot deduct your soil conservation expenses for this farm. 1040 es You must capitalize the expenses and add them to the basis of the land. 1040 es     For more information, see Material participation for landlords under Landlord Participation in Farming in chapter 12. 1040 es Plan Certification You can deduct soil and water conservation expenses only if they are consistent with a plan approved by the Natural Resources Conservation Service (NRCS) of the Department of Agriculture. 1040 es If no such plan exists, the expenses must be consistent with a soil conservation plan of a comparable state agency. 1040 es Keep a copy of the plan with your books and records to support your deductions. 1040 es Conservation plan. 1040 es   A conservation plan includes the farming conservation practices approved for the area where your farmland is located. 1040 es There are three types of approved plans. 1040 es NRCS individual site plans. 1040 es These plans are issued individually to farmers who request assistance from NRCS to develop a conservation plan designed specifically for their farmland. 1040 es NRCS county plans. 1040 es These plans include a listing of farm conservation practices approved for the county where the farmland is located. 1040 es You can deduct expenses for conservation practices not included on the NRCS county plans only if the practice is a part of an individual site plan. 1040 es Comparable state agency plans. 1040 es These plans are approved by state agencies and can be approved individual site plans or county plans. 1040 es   A list of NRCS conservation programs is available at www. 1040 es nrcs. 1040 es usda. 1040 es gov/programs. 1040 es Individual site plans can be obtained from NRCS offices and the comparable state agencies. 1040 es Conservation Expenses You can deduct conservation expenses only for land you or your tenant are using, or have used in the past, for farming. 1040 es These expenses include, but are not limited to, the following. 1040 es The treatment or movement of earth, such as: Leveling, Conditioning, Grading, Terracing, Contour furrowing, and Restoration of soil fertility. 1040 es The construction, control, and protection of: Diversion channels, Drainage ditches, Irrigation ditches, Earthen dams, and Watercourses, outlets, and ponds. 1040 es The eradication of brush. 1040 es The planting of windbreaks. 1040 es You cannot deduct expenses to drain or fill wetlands, or to prepare land for center pivot irrigation systems, as soil and water conservation expenses. 1040 es These expenses are added to the basis of the land. 1040 es If you choose to deduct soil and water conservation expenses, you cannot exclude from gross income any cost-sharing payments you receive for those expenses. 1040 es See chapter 3 for information about payments eligible for the cost-sharing exclusion. 1040 es New farm or farmland. 1040 es   If you acquire a new farm or new farmland from someone who was using it in farming immediately before you acquired the land, soil and water conservation expenses you incur on it will be treated as made on land used in farming at the time the expenses were paid or incurred. 1040 es You can deduct soil and water conservation expenses for this land if your use of it is substantially a continuation of its use in farming. 1040 es The new farming activity does not have to be the same as the old farming activity. 1040 es For example, if you buy land that was used for grazing cattle and then prepare it for use as an apple orchard, you can deduct your conservation expenses. 1040 es Land not used for farming. 1040 es   If your conservation expenses benefit both land that does not qualify as land used for farming and land that does qualify, you must allocate the expenses between the two types of land. 1040 es For example, if the expenses benefit 200 acres of your land, but only 120 acres of this land are used for farming, then you can deduct 60% (120 ÷ 200) of the expenses. 1040 es You can use another method to allocate these expenses if you can clearly show that your method is more reasonable. 1040 es Depreciable conservation assets. 1040 es   You generally cannot deduct your expenses for depreciable conservation assets. 1040 es However, you can deduct certain amounts you pay or incur for an assessment for depreciable property that a soil and water conservation or drainage district levies against your farm. 1040 es See Assessment for Depreciable Property , later. 1040 es   You must capitalize expenses to buy, build, install, or improve depreciable structures or facilities. 1040 es These expenses include those for materials, supplies, wages, fuel, hauling, and moving dirt when making structures such as tanks, reservoirs, pipes, culverts, canals, dams, wells, or pumps composed of masonry, concrete, tile, metal, or wood. 1040 es You recover your capital investment through annual allowances for depreciation. 1040 es   You can deduct soil and water conservation expenses for nondepreciable earthen items. 1040 es Nondepreciable earthen items include certain dams, ponds, and terraces described under Property Having a Determinable Useful Life in chapter 7. 1040 es Water well. 1040 es   You cannot deduct the cost of drilling a water well for irrigation and other agricultural purposes as a soil and water conservation expense. 1040 es It is a capital expense. 1040 es You recover your cost through depreciation. 1040 es You also must capitalize your cost for drilling a test hole. 1040 es If the test hole produces no water and you continue drilling, the cost of the test hole is added to the cost of the producing well. 1040 es You can recover the total cost through depreciation deductions. 1040 es   If a test hole, dry hole, or dried-up well (resulting from prolonged lack of rain, for instance) is abandoned, you can deduct your unrecovered cost in the year of abandonment. 1040 es Abandonment means that all economic benefits from the well are terminated. 1040 es For example, filling or sealing a well excavation or casing so that all economic benefits from the well are terminated constitutes an abandonment. 1040 es Endangered species recovery expenses. 1040 es   If you are in the business of farming and meet other specific requirements, you can choose to deduct the conservation expenses discussed earlier as endangered species recovery expenses. 1040 es Otherwise, these are capital expenses that must be added to the basis of the land. 1040 es   The expenses must be paid or incurred for the purpose of achieving site-specific management actions recommended in a recovery plan approved under section 4(f) of the Endangered Species Act of 1973. 1040 es See Internal Revenue Code section 175 for more information. 1040 es Assessment by Conservation District In some localities, a soil or water conservation or drainage district incurs expenses for soil or water conservation and levies an assessment against the farmers who benefit from the expenses. 1040 es You can deduct as a conservation expense amounts you pay or incur for the part of an assessment that: Covers expenses you could deduct if you had paid them directly, or Covers expenses for depreciable property used in the district's business. 1040 es Assessment for Depreciable Property You generally can deduct as a conservation expense amounts you pay or incur for the part of a conservation or drainage district assessment that covers expenses for depreciable property. 1040 es This includes items such as pumps, locks, concrete structures (including dams and weir gates), draglines, and similar equipment. 1040 es The depreciable property must be used in the district's soil and water conservation activities. 1040 es However, the following limits apply to these assessments. 1040 es The total assessment limit. 1040 es The yearly assessment limit. 1040 es After you apply these limits, the amount you can deduct is added to your other conservation expenses for the year. 1040 es The total for these expenses is then subject to the 25% of gross income from farming limit on the deduction, discussed later. 1040 es See Table 5-1 for a brief summary of these limits. 1040 es Table 5-1. 1040 es Limits on Deducting an Assessment by a Conservation District for Depreciable Property Total Limit on Deduction for Assessment for Depreciable Property Yearly Limit on Deduction for Assessment for Depreciable Property Yearly Limit for All Conservation Expenses 10% of: $500 + 10% of: 25% of: Total assessment against all members of the district for the property. 1040 es Your deductible share of the cost to the district for the property. 1040 es Your gross income from farming. 1040 es No one taxpayer can deduct more than 10% of the total assessment. 1040 es Any amount over 10% is a capital expense and is added to the basis of your land. 1040 es If an assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. 1040 es If the amount you pay or incur for any year is more than the limit, you can deduct for that year only 10% of your deductible share of the cost. 1040 es You can deduct the remainder in equal amounts over the next 9 tax years. 1040 es Limit for all conservation expenses, including assessments for depreciable property. 1040 es Amounts greater than 25% can be carried to the following year and added to that year's expenses. 1040 es The total is then subject to the 25% of gross income from farming limit in that year. 1040 es To ensure your deduction is within the deduction limits, keep records to show the following. 1040 es The total assessment against all members of the district for the depreciable property. 1040 es Your deductible share of the cost to the district for the depreciable property. 1040 es Your gross income from farming. 1040 es Total assessment limit. 1040 es   You cannot deduct more than 10% of the total amount assessed to all members of the conservation or drainage district for the depreciable property. 1040 es This applies whether you pay the assessment in one payment or in installments. 1040 es If your assessment is more than 10% of the total amount assessed, both the following rules apply. 1040 es The amount over 10% is a capital expense and is added to the basis of your land. 1040 es If the assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. 1040 es Yearly assessment limit. 1040 es   The maximum amount you can deduct in any one year is the total of 10% of your deductible share of the cost as explained earlier, plus $500. 1040 es If the amount you pay or incur is equal to or less than the maximum amount, you can deduct it in the year it is paid or incurred. 1040 es If the amount you pay or incur is more, you can deduct in that year only 10% of your deductible share of the cost. 1040 es You can deduct the remainder in equal amounts over the next 9 tax years. 1040 es Your total conservation expense deduction for each year is also subject to the 25% of gross income from farming limit on the deduction, discussed later. 1040 es Example 1. 1040 es This year, the soil conservation district levies and you pay an assessment of $2,400 against your farm. 1040 es Of the assessment, $1,500 is for digging drainage ditches. 1040 es You can deduct this part as a soil or conservation expense as if you had paid it directly. 1040 es The remaining $900 is for depreciable equipment to be used in the district's irrigation activities. 1040 es The total amount assessed by the district against all its members for the depreciable equipment is $7,000. 1040 es The total amount you can deduct for the depreciable equipment is limited to 10% of the total amount assessed by the district against all its members for depreciable equipment, or $700. 1040 es The $200 excess ($900 − $700) is a capital expense you must add to the basis of your farm. 1040 es To figure the maximum amount you can deduct for the depreciable equipment this year, multiply your deductible share of the total assessment ($700) by 10%. 1040 es Add $500 to the result for a total of $570. 1040 es Your deductible share, $700, is greater than the maximum amount deductible in one year, so you can deduct only $70 of the amount you paid or incurred for depreciable property this year (10% of $700). 1040 es You can deduct the balance at the rate of $70 a year over the next 9 years. 1040 es You add $70 to the $1,500 portion of the assessment for drainage ditches. 1040 es You can deduct $1,570 of the $2,400 assessment as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed later. 1040 es Example 2. 1040 es Assume the same facts in Example 1 except that $1,850 of the $2,400 assessment is for digging drainage ditches and $550 is for depreciable equipment. 1040 es The total amount assessed by the district against all its members for depreciable equipment is $5,500. 1040 es The total amount you can deduct for the depreciable equipment is limited to 10% of this amount, or $550. 1040 es The maximum amount you can deduct this year for the depreciable equipment is $555 (10% of your deductible share of the total assessment, $55, plus $500). 1040 es Since your deductible share is less than the maximum amount deductible in one year, you can deduct the entire $550 this year. 1040 es You can deduct the entire assessment, $2,400, as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed below. 1040 es Sale or other disposal of land during 9-year period. 1040 es   If you dispose of the land during the 9-year period for deducting conservation expenses subject to the yearly limit, any amounts you have not yet deducted because of this limit are added to the basis of the property. 1040 es Death of farmer during 9-year period. 1040 es   If a farmer dies during the 9-year period, any remaining amounts not yet deducted are deducted in the year of death. 1040 es 25% Limit on Deduction The total deduction for conservation expenses in any tax year is limited to 25% of your gross income from farming for the year. 1040 es Gross income from farming. 1040 es   Gross income from farming is the income you derive in the business of farming from the production of crops, fish, fruits, other agricultural products, or livestock. 1040 es Gains from sales of draft, breeding, or dairy livestock are included. 1040 es Gains from sales of assets such as farm machinery, or from the disposition of land, are not included. 1040 es Carryover of deduction. 1040 es   If your deductible conservation expenses in any year are more than 25% of your gross income from farming for that year, you can carry the unused deduction over to later years. 1040 es However, the deduction in any later year is limited to 25% of the gross income from farming for that year as well. 1040 es Example. 1040 es In 2012, you have gross income of $32,000 from two farms. 1040 es During the year, you incurred $10,000 of deductible soil and water conservation expenses for one of the farms. 1040 es However, your deduction is limited to 25% of $32,000, or $8,000. 1040 es The $2,000 excess ($10,000 − $8,000) is carried over to 2013 and added to deductible soil and water conservation expenses made in that year. 1040 es The total of the 2012 carryover plus 2013 expenses is deductible in 2013, subject to the limit of 25% of your gross income from farming in 2013. 1040 es Any expenses over the limit in that year are carried to 2014 and later years. 1040 es Net operating loss. 1040 es   The deduction for soil and water conservation expenses, after applying the 25% limit, is included when figuring a net operating loss (NOL) for the year. 1040 es If the NOL is carried to another year, the soil and water conservation deduction included in the NOL is not subject to the 25% limit in the year to which it is carried. 1040 es When to Deduct or Capitalize If you choose to deduct soil and water conservation expenses, you must deduct the total allowable amount on your tax return for the first year you pay or incur these expenses. 1040 es If you do not choose to deduct the expenses, you must capitalize them. 1040 es Change of method. 1040 es   If you want to change your method for the treatment of soil and water conservation expenses, or you want to treat the expenses for a particular project or a single farm in a different manner, you must get the approval of the IRS. 1040 es To get this approval, submit a written request by the due date of your return for the first tax year you want the new method to apply. 1040 es You or your authorized representative must sign the request. 1040 es   The request must include the following information. 1040 es Your name and address. 1040 es The first tax year the method or change of method is to apply. 1040 es Whether the method or change of method applies to all your soil and water conservation expenses or only to those for a particular project or farm. 1040 es If the method or change of method does not apply to all your expenses, identify the project or farm to which the expenses apply. 1040 es The total expenses you paid or incurred in the first tax year the method or change of method is to apply. 1040 es A statement that you will account separately in your books for the expenses to which this method or change of method relates. 1040 es Send your request to the following  address. 1040 es  Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999  For more information, see Change in  Accounting Method in chapter 2. 1040 es Sale of a Farm If you sell your farm, you cannot adjust the basis of the land at the time of the sale for any unused carryover of soil and water conservation expenses (except for deductions of assessments for depreciable property, discussed earlier). 1040 es However, if you acquire another farm and return to the business of farming, you can start taking deductions again for the unused carryovers. 1040 es Gain on sale of farmland. 1040 es   If you held the land 5 years or less before you sold it, gain on the sale of the land is treated as ordinary income up to the amount you previously deducted for soil and water conservation expenses. 1040 es If you held the land less than 10 but more than 5 years, the gain is treated as ordinary income up to a specified percentage of the previous deductions. 1040 es See Section 1252 property under Other Gains in chapter 9. 1040 es Prev  Up  Next   Home   More Online Publications
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Federal Legislative Branch

The legislative branch is the law making branch of government made up of the Senate, the House of Representatives, and agencies that support Congress.

U.S. Congress

Legislative Process Overview

Learn how the US Congress works to create laws.

Show Video Transcript

Article I of the U.S. Constitution grants all legislative powers to a bicameral Congress: a House of Representatives and a Senate that are the result of a “Great Compromise” seeking to balance the effects of popular majorities with the interests of the states. Our system currently provides for a two-year term of office for House members from the 435 population-based districts. In the Senate, voters of each state elect two Senators, who serve 6-year terms that overlap (such that only one-third of the chamber is up for election in any given election cycle).

The two chambers are fundamentally equal in their legislative roles and functions. Only the House can originate revenue legislation, and only the Senate confirms presidential nominations and approves treaties, but the enactment of law always requires both chambers to separately agree to the same bill in the same form before presenting it to the President.

Because each chamber has the constitutional authority to make its own rules, the House and Senate have developed some very different ways of processing legislation, perhaps partially flowing from their constitutional differences. In general, House rules and practices allow a numerical majority to process legislation relatively quickly. Senate rules and procedures, on the other hand, favor deliberation over quick action, as they provide significant procedural leverage to individual Senators.

Congressional action is typically planned and coordinated by party leaders in each chamber, who have been chosen by members of their own caucus or conference – that is, the group of members in a chamber who share a party affiliation. Majority party leaders in the House have important powers and prerogatives to effectively set the policy agenda and decide which proposals will receive floor consideration. In the Senate, the leader of the majority party is generally expected to propose items for consideration, but formal tools that allow a numerical majority to take action are few. Instead, majority party leadership typically must negotiate with minority party leaders (and often all Senators) to effectively conduct Senate floor action.

In both chambers, much of the policy expertise resides in the standing committees – panels of members from both parties that typically take the lead in developing and assessing legislation. Members typically serve on a small number of committees, often for many years, allowing them to become highly knowledgeable in certain policy areas. All committees are chaired by a member of the majority party, though chairs often work closely with the committee’s ranking member, the most senior member of the minority party on the committee. In almost all cases, the ratio of majority party to minority party members on a committee roughly reflects the overall partisan ratio in the congressional chamber.

Committee members and staff focus much of their time on drafting and considering legislative proposals, but committees engage in other activities, as well. Once law is enacted, Congress has the prerogative and responsibility to provide oversight of policy implementation, and its committees take the lead in this effort. Both chambers provide their committees with significant powers and latitude for oversight and investigations into questions of public policy and its effects.

While the engine of legislative ideas and action is Congress itself, the President has influence in the legislative process, as well. The President recommends an annual budget for federal agencies and often suggests legislation. Perhaps more significantly, the power to veto legislation can affect the content of bills passed by Congress. Since it is quite unusual for law to be enacted over a presidential veto, Congress typically must accommodate the president’s position on proposed policies.

The process by which a bill becomes law is rarely predictable and can vary significantly from bill to bill. In fact, for many bills, the process will not follow the sequence of congressional stages that are often understood to make up the legislative process. The presentations on specific topics that follow present a more detailed look at each of the common stages through which a bill may move, but keep in mind that complications and variations abound in practice.

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1040 es 9. 1040 es   Obligations Not in Registered Form Tax is imposed on any person who issues a registration-required obligation not in registered form. 1040 es The tax is: 1% of the principal of the obligation, multiplied by The number of calendar years (or portions of calendar years) during the period starting on the date the obligation was issued and ending on the date it matures. 1040 es A registration-required obligation is any obligation other than one that meets any of the following conditions. 1040 es It is issued by a natural person. 1040 es It is not of a type offered to the public. 1040 es It has a maturity (at issue) of not more than 1 year. 1040 es It can only be issued to a foreign person. 1040 es For item (4), if the obligation is not in registered form, the interest on the obligation must be payable only outside the United States and its possessions. 1040 es Also, the obligation must state on its face that any U. 1040 es S. 1040 es person who holds it shall be subject to limits under the U. 1040 es S. 1040 es income tax laws. 1040 es Prev  Up  Next   Home   More Online Publications