Inherited farm with irrigation

[kathyc2]

I have a client that will be inheriting farm land with a pivot irrigation system.  They are planning on keeping and renting out the farm land.  Some quick research shows that land with the irrigation is valued at about 4 times more than non-irrigated. There are no buildings on the land, so only item for depreciation would be irrigation.

I'm thinking the irrigation value could be deprecated over 15 years?

Would the valuation when they get it need to show the breakdown between just the land and the irrigation system?

Would it make a difference if the rent is cash rent or shared revenue/expense rent for the depreciation?

[Lion EA]

A couple of resources:

https://www.irs.gov/forms-pubs/about-publication-225

https://taxschool.illinois.edu/?s=Farm

And, lots more from the U of I Tax School: https://taxschool.illinois.edu/

[BulldogTom]

16 minutes ago, kathyc2 said:

I have a client that will be inheriting farm land with a pivot irrigation system.  They are planning on keeping and renting out the farm land.  Some quick research shows that land with the irrigation is valued at about 4 times more than non-irrigated. There are no buildings on the land, so only item for depreciation would be irrigation.

I'm thinking the irrigation value could be deprecated over 15 years?

Would the valuation when they get it need to show the breakdown between just the land and the irrigation system?

Would it make a difference if the rent is cash rent or shared revenue/expense rent for the depreciation?

The estate should have an appraised value for the property at DOD, and if you are lucky, it will break out the land from the improvements.   If the estate did not do an appraisal, or if they did but did not break out the irrigation improvements, then it would be best practice for your clients to have an appraisal done when they get the property.   If they have to get an appraisal done, it would be a good idea to show the appraiser the valuation at DOD so everything matches up.   I believe the irrigation improvements will be 15 year property, but watch for anything that can be segregated out that is less than 15 year property.   There may not be any, but you could potentially accelerate some of the assets if they are a different class.

Tom
Longview, TX

[BulldogTom]

26 minutes ago, kathyc2 said:

Would it make a difference if the rent is cash rent or shared revenue/expense rent for the depreciation?

Be careful that your client is not getting into a partnership with their renter.   If they are sharing income and expenses, it sounds a lot like your client is putting in land and the "renter" is putting in labor to produce a crop that each will then share the profits from.   That looks a lot like a partnership.   If that is what they are wanting to do, that is fine, but there are tax/legal implications to consider.

Tom
Longview, TX

[Lion EA]

The gentleman "farmer" has sharecroppers.

Does her client have to send Forms 1099-NEC? (Or, 1099-MISC?)

[DANRVAN]

2 hours ago, kathyc2 said:

I'm thinking the irrigation value could be deprecated over 15 years?

It is a combination of 7 year and 15 year.

The above ground pivot is movable while the well and underground pipe are permanently attached to the land.

2 hours ago, kathyc2 said:

Would the valuation when they get it need to show the breakdown between just the land and the irrigation system?

 A separate appraisal might be needed for the pivot by an equipment appraiser.  A RE appraisal might not include the details.

 

2 hours ago, kathyc2 said:

Would it make a difference if the rent is cash rent or shared revenue/expense rent for the depreciation?

I don't see where it would matter.

[DANRVAN]

3 hours ago, kathyc2 said:

shared revenue/expense rent for the depreciation?

I think you are referring to a crop share lease which is not a partnership.

[BulldogTom]

14 hours ago, DANRVAN said:

I think you are referring to a crop share lease which is not a partnership.

I have heard of sharecropping, but I thought that was (and I don't mean this to be political but historical) how landowners after the civil war pretty much kept former slaves impoverished.   Is this still a practice?   Excuse my ignorance and please don't take offense.

Tom
Longview, TX

[Lee B]

Tax Implications of a Farmland Lease:

https://www.calt.iastate.edu/article/tax-implications-farmland-lease

[kathyc2]

Thanks all!