[Code of Federal Regulations]
[Title 26, Volume 3]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.182-3]

[Page 235-236]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
COMPUTATION OF TAXABLE INCOME (Continued)--Table of Contents
 
Sec. 1.182-3  Definition, exceptions, etc., relating to deductible expenditures.

    (a) Clearing of land. (1) For purposes of section 182, the term 
clearing of land includes (but is not limited to):
    (i) The removal of rocks, stones, trees, stumps, brush or other 
natural impediments to the use of the land in farming through blasting, 
cutting, burning, bulldozing, plowing, or in any other way;
    (ii) The treatment or moving of earth, including the construction, 
repair or removal of nondepreciable earthen structures, such as dikes or 
levies, if the purpose of such treatment or moving of earth is to 
protect, level, contour, terrace, or condition the land so as to permit 
its use as farming land; and
    (iii) The diversion of streams and watercourses, including the 
construction of nondepreciable drainage facilities, provided that the 
purpose is to remove or divert water from the land so as to make it 
available for use in farming.
    (2) The following are examples of land clearing activities:
    (i) The cutting of trees, the blasting of the resulting stumps, and 
the burning of the residual undergrowth;
    (ii) The leveling of land so as to permit irrigation or planting;
    (iii) The removal of salt or other minerals which might inhibit 
cultivation of the soil;
    (iv) The draining and filling in of a swamp or marsh; and
    (v) The diversion of a stream from one watercourse to another.
    (b) Expenditures not allowed as a deduction under section 182. (1) 
Section 182 applies only to expenditures for nondepreciable items. 
Accordingly, a taxpayer may not deduct expenditures for the purchase, 
construction, installation, or improvement of structures, appliances, or 
facilities which are of a character which is subject to the allowance 
for depreciation under section 167 and the regulations thereunder. 
Expenditures in respect of such depreciable property include those for 
materials, supplies, wages, fuel, freight, and the moving of earth, paid 
or incurred with respect to tanks, reservoirs, pipes, conduits, canals, 
dams, wells, or pumps constructed of masonry, concrete, tile, metal, 
wood, or other nonearthen material.
    (2) Expenditures which are deductible without regard to section 182 
are not deductible under section 182. Thus, such expenditures are 
deductible without being subject to the limitations imposed by section 
182(b) and Sec. 1.182-5. For example, section 182 does not apply to the 
ordinary and necessary expenses incurred in the business of farming 
which are deductible under section 162 even though they might otherwise 
be considered to be clearing of land expenditures. Section 182 also does 
not apply to interest (deductible under section 163) nor to taxes 
(deductible under section 164). Similarly, section 182 does not apply to 
any expenditures (whether or not currently deductible) paid or incurred 
for the purpose of soil or water conservation in respect of land used in 
farming, or for the prevention of erosion of land used in farming, 
within the meaning of section 175 and the regulations thereunder, nor to 
expenditures deductible under section 180 and the regulations 
thereunder, relating to expenditures for fertilizer, etc.
    (c) Depreciation. In addition to expenditures for the activities 
described in paragraph (a) of this section, there also shall be treated 
as an expenditure to which section 182 applies a reasonable allowance 
for depreciation not otherwise deductible on property of the taxpayer 
which is used in the clearing of land for the purpose of making such 
land suitable for use in farming, provided the property is property 
which, if used in a trade or business, would be subject to the allowance 
for depreciation under section 167. Depreciation allowable as a 
deduction under section 182 is limited to the portion of depreciation 
which is attributable to the use of the property in the clearing of 
land. The depreciation shall be computed in accordance with section 167 
and the regulations thereunder. To the extent an amount representing a 
reasonable allowance for depreciation with respect to property used in 
clearing land is treated as an expenditure to which section 182 applies, 
such depreciation shall, for purposes of chapter 1 of the Code, be 
treated as an amount allowed under section 167 for depreciation.

[[Page 236]]

Thus, if a deduction is allowed for depreciation under section 182 in 
respect of property used in clearing land, proper adjustment to the 
basis of the property so used shall be made under section 1016(a).

[T.D. 6794, 30 FR 791, Jan. 26, 1965]