.

Pigs get fatter, hogs go to market. 

50% is pretty good, when age, size, and usability is not known.

Remember......tile is deemed to be a land improvement.......and NOT depreciable. 

Therefore, IRS deems it to be ongoing value, just like land, and therefore with no obvious terminal life........there is no obvious end of life, and no depreciation.

However........just because of a rule that was established in the old investment credit days.........land improvements (such as tiling and fencing) are DEEMED to be depreciable property, if involved directly in the act of production.

So........since tiling becomes depreciable just because of an old rule.......don't get greedy.........and have the result being the IRS requiring you to PROVE the existence of tile, its value, and its usability.

Make sure you have documentation.......that it is logical........and that you can show how you have established the existence, the value, and condition of land improvements that you want to depreciate.

New tile--- has MACRS class of 15, MACRS ADS life is 20.

Fencing is a land improvement, that gets its depreciable nature under the same rule as tiling........but it has a class life of 7 years.

You are correct.

If whole farm costs 500,000......and you can justify that there is 50,000 worth of tile on that farm when purchased,

you would allocate 450,000 to farm land......and 50K to depreciable tile (if you are a producer).......

Upon sale..........you would have 450K in basis in land.........and whatever, if any, unadjusted basis left in the tile........ie tiling like other depreciable assets do not have to be written off under section 179..........so if there were 30K of un-depreciated basis left.........the entire basis would total 450+30 = 480000.

AND-------- the sales price should be allocated between the land, and the tile.

The land would be asset sold at tax rate of 15% (assuming long term capital asset),

but the tile would be sold as section 1245 asset.......same as sale of tractor.......and the depreciation would be recaptured in year of sale to the lower of sales price or depr taken.

NOTE......... if the tile portion is significant.........and if the 1245 gain would be significant...........and if the land were being sold on the installment basis..........then remember that the 1245 gain is recaptured in year of sale regardless of the amount of cash received for that portion of the entire sale. 

Therefore, it would be prudent to say in the contract that the FIRST cash received would go towards the tile portion of the sale.  In the absence of agreement to contrary, IRS has the right to allocate on a "fair basis"........and that logically would be same percent of gross sales of the portions, times the cash received...........which would obviously be adverse to the taxpayer.

Lastly.........the IRS has the right to check how the buyer handled the sales transaction as compared to the seller.

So.......if seller allocated nothing to the tile portion of the sale, and the buyer allocated a big bunch.........and the IRS was chasing one or the other taxpayers.........either could get tripped up.

So.......be alert to be reasonable.........but the best route is an allocation in the contract.........which is seldom seen, merely since it is an element that causes big-time friction.

Just be aware that there are other reasons for being reasonable, and documenting one's position to extent possible.

If I were preparing for either.....

.... I would have aerial photographs if such show the lines.....or don't show the lines. 

If seller, I would have prior year tax returns showing tile purchased/not purchased, and if purchased, would have invoices and affidavits from anyone involved in installation as to where installation occurred.

If buyer....

...aerial maps,

pictures of tile outlets, stand-pipes, etc.

maps showing layout (since then IRS could choose any spot along those lines and ask for a digging),

topographic maps showing lay of land, and how that ties to tile outlets and logical placement of tile lines.

Always remember.......as crappy as it is.........IRS has the right under statute to argue out of both sides of its mouth....

.....it could argue against the seller that tons of tile was out there--------- which, if the seller was being honest, and did his homework by showing the location of tile that he had previously included and depreciated in his prior tax returns, the seller would easily refute.......and IRS would not pursue that.

The seller has the advantage (or maybe disadvantage, depending on the stance he took) of being able to use prior tax returns as evidence.

NOTE also that it is REMOTELY POSSIBLE.......depending upon the circumstances..........that if seller installed tile years before, but did NOT take any or just nominal depr on it, that such undepreciated basis in that old tile would add to the basis of the overall land.........and hence helping seller's position.

The buyer would be the one that is typically cooked.........in the absence of tile maps drawn and signed by the seller.........the buyer is at the mercy of no documentation........and therefore would have to be real creative and detailed, in order to build a case that would be believable by a court.

That is why I emphasize that especially buyers need to be just "pigs"........and do a detailed job of documentation..........and I would, if I had to choose just one item, choose a tile map drawn on a topo map.

Take pictures of stand-pipes and outlets.........and then tie all of that together in the maps showing how the area could be drained to those outlets.

Is it worth it?

Well..........say it takes a full three days = 24 hours.

Say.........50,000 of tile dollars........ x 15% income tax and 15% self employment tax.......and 6% state tax. = 36% x 50K = 18,000 taxes.

18,000 taxes / 24 hours = 750 per hour effective wages.

Or, say one spends an entire week....... 40 hours....... = 450.00 per hour wages.

Seems to me to be worth the trip........especially since the money was already spent for the tile/land.