Water: more often than not, there isn’t enough of it. But sometimes, there’s too much and it needs to be relocated. Some historians say the first tile drainage systems used in an agricultural setting date back to the Roman Empire.

A version closer to the system used today was first implemented in New York in 1883 by John Johnston who would later be known as “the father of tile drainage.” When Johnston was putting in his system, he used clay tiles below his field’s surface to help drain excess water. That’s likely where the term “tile” originated.

“Essentially, when a farmer has a spot in their field where water pools or won’t drain correctly, they’ll install a tile drainage system under the surface,” said Boa Sofra Ag CFO Marcus Steffen. “The primary goal is to take the water away and drain it into a more efficient place.”

The goal of a tile system is to allow more air and water to equally fill the soil space which will ultimately improve yield through, in part, deeper root growth.

There are roughly 50 million acres with miles upon miles of tile systems spread across U.S. fields. Steffen estimates the cost to install a system today is $1 to $3 per foot.

“I’ve also found a lot of places charge per acre,” Steffen added. “I believe that has something to do with the topography of the farm. Some places might need more drainage because it’s flatter, whereas a rolling hill field won’t need as much in the high spots.”

The long-term investment of a tile drainage system continues to pay dividends even after the estimated 15-year life span expires. Proper drainage will allow a farmer to get in earlier to plant during a wet year and should help them avoid replanting in most cases.

“When you get tile installed, the asset basis includes all the installation and purchase costs,” Steffen said. “For tax purposes, the system depreciates over 15 years. You can pick and choose how much you want to write off in the first year or you can use bonus depreciation.”

Most farmers will write off the entire expense in that first year using section 179 of the IRS code.

IRS Section 179 Deduction: allows business owners to deduct the full purchase price of certain equipment for the year it was placed in service.

However, not all operations are eligible for the 179 deductions.

“If your operation has put more than 2.7 million dollars of equipment into service, you have exceeded the limitations of section 179,” Steffen said. “After 2.7 million dollars the deduction is reduced dollar for dollar for every additional dollar of equipment put in service. Any assets with a useful life of 15 years or less, get lumped into section 179. That’s everything from sidewalks and driveways to tractors and other heavy farm equipment. Anything that lasts more than a year, including a cow, the IRS will give you useful life for.”

After adding tile to our operation, the next step is determining which tax route to take. A majority of operations will opt for bonus depreciation in that first year, but there are some major factors to consider.

“A farmer’s income at the end of the year can heavily affect how the farm operates the next year,” Steffen said. “If they get in a pinch and can’t write off their tile all in the same year – thus not lowering their overall income – they might get stuck with a big tax bill.”

Steffen said it’s usually the first-time farmers who end up claiming the tax break on their tile system over a few years rather than all in the first one. This helps spread out the expense while improving their bottom line.

Typically a tile project will enhance the current yields and therefore the current farm income. In addition here at Halderman we find that tile investments tend to add directly to the value of the farm, many times a 1-for-1 return. For example, a pattern-tiled farm may see yields increase 20% on an annual basis and add $1,000/acre or more in value appreciation.

“It’s a long-term investment that a lot of farmers are doing,” Steffen said. “If you can control how much water sits on your land, you can potentially open up a lot of acres that you already paid for but haven’t been able to farm.”

While the tax forms say the system should last 15 years, most continue functioning for significantly longer. It’s one of those items that if it isn’t broken, don’t fix it.

More about Boa Safra Ag

“We do reports that tell farmers how much residual fertilizer they have on the farm they purchase and then they’re able to write that off on their taxes,” Steffen said. “It’s been done in the past, but it’s usually by a local agronomist. We’ve taken it a step further, to a professional level, so we can create these reports that will help a farmer out and stand up in the event they have to defend it against the IRS if they get audited.”