Series 22: 3.4.4. Other Agricultural Deferral And Conversion Programs

Taken from our Series 22 Top-off Online Guide

3.4.4.  Other Agricultural Deferral and Conversion Programs

An investment in an orchard or vineyard involves years of cultivation before harvesting begins. The time between planting and the first commercial harvest may be five years or more for grapes, seven years for apples. A commercial harvest occurs when trees or vines produce a crop whose value exceeds the cost of harvesting it.

Prior to production, investors incur preparatory costs for the purchase and planting of seedlings, and preproduction costs, the expense of irrigating, pruning, frost protection, spraying, and fertilizing.

In general, all preparatory and preproduction costs, like the trees or vines themselves, must be capitalized and depreciated over the 10-year economic life of the asset. However, the amortization period does not begin until the first year of commercial operation.

The uniform capitalization rules, as they are called, generally apply to the cultivation of any plant with a preproduction period of more than two years. If an orchard or vineyard is a corporation, partnership, or tax shelter, which is required to use the accrual method of accounting, these rules also apply to plants with a preproduction period of less than two years.

Independent farmers, orchards, and vineyards that are not required to use accrual accounting may elect in the program’s first year of operation to deduct a portion of their preproduction costs (but not preparatory costs) in the year they are incurred. Deductions may be as much as $5,000 for start-up costs and $5,000 for organizational

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