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 COST IN WATER
INCOME TAX DEPLETION ALLOWANCE
The service described in this
document is available only to persons owning land within the 15-county High Plains
Undergroundwater Conservation District No. 1 service area.
In 1962, the High Plains Underground Water Conservation District
No. 1 initiated a lawsuit against the U.S. Treasury/Internal Revenue Service for
a tax credit for the depletion of groundwater used in irrigated farming. The
lawsuit was
filed by Marvin and Mildred Shurbet, who owned land in Floyd County, Texas. The
High Plains Water District developed and organized data for the trial, paid for
the expert witnesses and legal fees, as well as other costs associated with the
trial.
Landowners within the High Plains Water District service area
who utilize groundwater produced from the Ogallala Formation in the business of
irrigation farming may claim a cost-in-water income tax depletion allowance on
their federal income tax return. This allowance is permitted under strict
guidelines of the Internal Revenue Service.
The allowance requires that the taxpayer must have paid more for
a tract of land because it had groundwater in storage beneath it as compared to
a similar tract of land in the same area with little or no groundwater in
storage.
The allowance is based on annual depreciation of the initial
extra cost of groundwater that was part of the total purchase price of a tract
of land. The total value of improvements to the property must be subtracted from
the total cost of the land and the IRS approved county average value of dryland
property for the year of property acquisition must also be subtracted from the
total purchase price of the property to derive the groundwater cost. The
derived groundwater cost is the value subject to depreciation and a principal
element of the depletion allowance determination.
The allowable annual depreciation is directly related to the
Internal Revenue Service approved annual decline in water levels for individual
tracts of land. These decline values are derived from measured changes in water
levels in a select network of observation wells located within the service area
of the High Plains Undergroundwater Conservation District No. 1.
The Water District contracts with a professional land appraiser
who documents land sales in portions of the district each year. An average
per-acre sales value for dryland and irrigated land is determined. Internal
Revenue Service engineers meet with District officials each year and
"cost-in-water" guidelines are developed for each county. These annual
guidelines are valid for use only for those land acquisitions that occur during
a sales study year.
The Water District charges a $50 fee for the basic information
to establish a claim, including saturated thickness and annual decline for up to
three prior years and cost-in-water sales data for the year of land acquisition.
Each year following the initial set-up, the Water District charges a $10 fee for
decline data, if a decline occurs. If there is no decline, no fee is charged.
In addition to the money saved, we believe this program provides
landowners with an annual water "bank statement" which reminds them that their
groundwater reserves are being depleted. As a result, many landowners have
implemented better water conservation practices on their farms.
For more information, contact Rita Tucker at
rita@hpwd.com.
If this is the first time you are
requesting the cost-in-water income tax depletion allowance,
click here
to download an initial request form in PDF format.
If you have previously requested this
service, click
here to download a reorder request form.
PLEASE SEEK THE ADVICE OF YOUR TAX
ADVISOR FOR DETAILS FOR FILING CLAIMS.
This
page last updated
10/11/2007
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