District Programs and Activities
IRS Cost in Water Depletion Program
Landowners in the Southern High Plains of Texas who use groundwater from the Ogallala formation for irrigation farming may claim a cost in water depletion allowance on their federal income tax return. The District's Board of Directors and staff are pleased to have offered this service for the first time in 1999.
The program benefits irrigated land owners affected by declining water levels. The tax benefit an irrigated land owner receives from this decline is based on two factors: 1) the saturated thickness of the aquifer underlying their property at the time of acquisition, and 2) the cost of their land attributable to water.
In order to participate, the District must follow the strict guidelines of the Internal Revenue Service. Eligible properties, within the South Plains Water District, are those which have been acquired since 1979. This date of acquisition was set by the IRS after evaluating District records pertaining to water level measurements and land sales.
During the summer and fall of 1999, SPUWCD staff constructed contour maps which illustrate the base of the Ogallala Aquifer, 1995 saturated thickness, and assigned declines for the years 1995-1999. The District also contracted the services of a certified land appraiser who collected land sales data. The sales data helps establish the cost of water for each year. The IRS must approve the decline maps and cost of water figures for each year.
The economic benefits of this program may be especially helpful to landowners affected by both declining water levels and recent low commodity prices. When qualified landowners receive this tax benefit, they are also reminded of the ever present need for continued conservation.
PLEASE SEEK THE ADVICE OF YOUR TAX ADVISOR FOR DETAILS FOR FILING CLAIMS.
IRS Publication 225 (2004) Farmer's Tax Guide
Cost depletion for ground water in Ogallala Formation. Farmers who extract ground water from the Ogallala Formation for irrigation are allowed cost depletion. Cost depletion is allowed when it can be demonstrated the ground water is being depleted and the rate of recharge is so low that, once extracted, the water is lost to the taxpayer and immediately succeeding generations.
To figure your cost depletion deduction, use the guidance provided in Revenue Procedure 66-11 in Cumulative Bulletin 1966-1.
For tax years ending before December 13, 1982, those extracting ground water for irrigation farming from the Ogallala Formation in areas outside the Southern High Plains were not required to reduce their basis in ground water by any allowable cost depletion not claimed.