What is inside a farm cost segregation report
The full structure of the deliverable, section by section, with the numbers from one illustrative sample study on an 18-acre almond farm with two rental houses. Every figure on this page is transcribed from that report, so you can hold your own study against it.
What this is. An illustrative sample report on a made-up farm, watermarked ILLUSTRATIVE SAMPLE on every one of its 72 pages. There is no client in it and no real address. It is not a customer's study, redacted or otherwise, and we do not publish one without that customer's named approval. What is real is the method, the sections, the authorities cited and the schedules: those are what a paying engagement receives.
The farm the sample is built on
A farm is a list of assets, not one building. This one was chosen so that every class a farm study can use appears at least once.
How one purchase price became a list
This is Section 1.2 of the report. Land is set aside first. The trees are carried at their own value, $72,053. The $704,947 that remains is spread across every building and site asset in proportion to its replacement cost new less depreciation for age (RCNLD), in whole dollars, so the parts add to the whole. Each building's replacement cost new is multiplied by its normal percent good for its age, read from published age-life tables. It is not adjusted for condition.
| Asset | Size | Replacement cost new | % good | RCNLD | Share | Allocated |
|---|---|---|---|---|---|---|
| Main house (rental) | 1,850 SF | $441,408 | 48% | $211,876 | 51.96% | $366,303 |
| Cottage (rental) | 1,050 SF | $250,529 | 36% | $90,190 | 22.12% | $155,926 |
| Barn | 3,000 SF | $80,430 | 10% | $8,043 | 1.97% | $13,905 |
| Machine shed | 2,000 SF | $41,440 | 31% | $12,846 | 3.15% | $22,210 |
| Irrigation well | 180 ft | $13,860 | n/a* | $13,860 | 3.40% | $23,962 |
| Pump column and wire | 120 ft | $2,686 | n/a* | $2,686 | 0.66% | $4,644 |
| Submersible pump, 10 HP | 1 | $7,304 | n/a* | $7,304 | 1.79% | $12,628 |
| Micro-sprinklers: emitter lines, filters and controls | 12 acres | $30,584 | n/a* | $30,584 | 7.50% | $52,875 |
| Micro-sprinklers: buried mainline and submains | 12 acres | $13,107 | n/a* | $13,107 | 3.21% | $22,661 |
| Perimeter fence, woven wire | 2,400 ft | $17,256 | n/a* | $17,256 | 4.23% | $29,833 |
| Total | $898,604 | $407,753 | 100.00% | $704,947 |
* Weighted at replacement cost new without a reduction for age: the well, pump, pump column and irrigation because the published tables give no average life for them, and the fence because no year built is stated for it. Each house's total comes from this table. How that total divides among the house's own components comes from the same residential cost model we use for every rental house, so a farm house and a house in town are measured alike.
What the sample allocated, class by class
This is Sections 1.1 and 3 of the report. The six class amounts add to the depreciable basis exactly, which is the check to run on any study. A farm uses classes no other property type on this site does: 10-year trees, and 20-year farm buildings.
| Recovery class | Basis | Share | First year |
|---|---|---|---|
| 5-year personal property 200% declining balance, half-year Inside the two rental houses: appliances, removable light fixtures, vinyl and carpet, blinds, closet shelving and similar items. $29,385 in the main house and $10,082 in the cottage. | $39,467 | 5.1% | $39,467 |
| 7-year personal property 200% declining balance, half-year The above-ground half of the micro-sprinkler system $52,875; the woven wire perimeter fence $29,833; the 10 HP submersible pump $12,628. Equipment that came with the farm is used, so it is 7-year and not 5-year. | $95,336 | 12.3% | $95,336 |
| 10-year trees and vines bearing fruit or nuts Straight line, half-year The 12-acre almond block. The method is straight line because the law requires it for trees and vines; declining balance is not available. | $72,053 | 9.3% | $72,053 |
| 15-year land improvements 150% declining balance, half-year The irrigation well $23,962; the buried mainline and submains $22,661; the pump column and wire $4,644; and the paving, fencing, landscaping and drainage beside the two houses, $23,749 at the main house and $10,252 at the cottage. | $85,268 | 11.0% | $85,268 |
| 20-year farm building 150% declining balance, half-year The barn $13,905 and the machine shed $22,210. Both are older buildings, so their share of the price is reduced for age (Section 1.2). The classification depends on the building being used in farming. | $36,115 | 4.6% | $36,115 |
| 27.5-year residential real property Straight line, mid-month The structure of the two rental houses: framing, foundation, roofing, plumbing, electrical, heating and cooling, built-in cabinets and the rest. Real property takes no bonus depreciation. | $448,761 | 57.8% | $8,840 |
| Depreciable basis | $777,000 | 100.0% | $337,079 |
| Shorter-life property, a recovery period of 20 years or less | $328,239 | 42.2% |
Read this as one result, not as a range. This farm's shorter-life property is 42.2% of basis, which sits inside the 8–65% we model for farms, and says nothing about where any other farm lands. First-year figures are deductions, not tax saved. They apply bonus depreciation of 100% to the classes that qualify, which here is $328,239 of basis, and each class's own first-year rate to what remains. If the whole basis were carried as a 27.5-year rental, the first year would be $15,305.
Two measures, and why the report keeps them apart
The report prints shorter-life property and bonus-eligible basis as two lines and says they are not added together. The first counts property by how long it is depreciated. The second counts property that qualifies for bonus depreciation, which depends on the recovery period and also on the taxpayer's elections and the acquisition date. In this sample the two are the same $328,239 because no election was made. With an election they part, and the study would show it.
20 years or less
- 5-year: appliances, flooring and fixtures inside the rental houses
- 7-year: fences, pumps, the above-ground half of irrigation, and equipment that came with the farm
- 10-year, straight line: trees and vines that bear fruit or nuts
- 15-year: the well, buried pipe, and the paving and site work beside the houses
- 20-year: a barn, shop or shed used in farming
Stays where it is
- Land. $1,073,000 here, and never depreciated
- Preparing land for planting. Clearing, levelling and ripping are part of the land
- The structure of each rental house. $448,761 here, at 27.5 years
- A house the owner lives in. Its share of the price is left out of the study
The 72 pages, section by section
Fourteen numbered sections and six appendices. The page numbers below are this sample's; a farm with more buildings runs longer.
Executive summary, first-year analysis and allocation bridge
The cost of the property, the land and the depreciable basis, then four headline measures: shorter-life property, bonus-eligible basis, first-year depreciation with the study, and first-year depreciation if the whole basis were carried as a 27.5-year rental. The report says in plain words that the first two are different things and are not added together. A CPA quick-reference page follows, then the first year by class (1.1) and the allocation bridge (1.2): land first, then trees at their own value, then every building and site asset in proportion to its replacement cost new less depreciation for age. The bridge closes with the sources relied on and their evidence status, what was deliberately left out, and every farm asset category marked declared, not declared, or not assessed.
Property summary and farm property use
The facts of the property, then each structure and site asset one by one (2.1) with the facts the study was given about it and who stated each one. A classification that depends on how an asset is used rests on a statement of that use, never on a photograph.
Cost allocation summary
One row per recovery class with the Rev. Proc. 87-56 asset class or Code section it rests on, the assets it contains, its basis and its share. The rows add to the depreciable basis.
Detailed asset schedule and reconciliation
Every asset in the study, grouped by the building or site asset it belongs to. Each house has its own table of components, and the farm buildings, equipment and site improvements share one. Section 4.1 ties the cost of the property to land, to the assets and to the classes.
Farm classification analysis
For every asset: what it is, how it is used, what supports those facts, the class it takes and why, and what class would apply instead if a fact it rests on turned out otherwise, including why equipment that came with the farm is 7-year and why trees are straight line.
MACRS depreciation schedules
A year-by-year schedule for each class that carries basis, in order of recovery period, with real property last, and the federal bonus treatment stated above each table.
Land
The land figure, where it came from, and the statement that the cost of clearing, levelling and ripping land for planting is part of the land.
Facts and assumptions, sensitivity and limitations
The dates, the three depreciation election questions and the taxpayer's answer to each, and which facts were stated and which assumed. Section 8.1 lists each assumption the result depends on and what would change if it turned out otherwise.
Methodology and basis of analysis
How replacement cost new is worked out and reduced for age with published age-life tables, the public sources the unit costs come from, and a plain statement that the split of an irrigation system between equipment and buried pipe is a modelling judgement and not an Internal Revenue Service table.
Schedule for fixed asset ledger entry
One line per asset with its basis, recovery period, method, convention and bonus percentage, ready to enter into fixed-asset software. The lines add to the depreciable basis.
Legal authority, recapture, practitioner review and conclusion
The authorities each classification rests on, how depreciation is recaptured on a sale for each kind of property, a walk from the cost of the property to each asset's class and first-year figure for the tax preparer, and a one-paragraph conclusion.
Cost derivation, ledger, quality elements, framework, class reference and disclaimers
Each structure's replacement cost new and how it was restated to this property's location and prices, the 13 quality elements of IRS Publication 5653 and where the report addresses each, the class lives and recovery periods of every class used, record keeping, and what the report is and is not.
What this sample does not contain, and why
There are no photographs in it: a farm study is built from the list of what is on the farm. There is no catch-up calculation for a farm bought in an earlier year, because we do not yet offer that for farms. And it does not compute depreciation under the alternative depreciation system: a farm whose owner has made one of the three elections is held for review instead. We would rather tell you what is absent than describe a section you would not receive.
Where the costs come from
Unit costs for farm buildings, single-purpose structures, fences, wells, pumps and irrigation come from public agricultural cost data published by the State of California and the University of California, together with nationally recognized construction cost data. Section 9 of the report names each source and the year relied upon.
One thing in it is our judgement, and the report says so. Each irrigation system is carried as two assets: emitter lines, filters and controls above ground as farm equipment, and mainline and submains below ground as a land improvement, at 70 percent and 30 percent of the system's cost. That split is a modelling judgement, not an Internal Revenue Service table. Its source is the State of California's rural cost handbook, which states the ratio for vineyard drip systems; applying it to other systems is ours.
Report questions
Is this a real customer's study?
The sample shows 42.2%. Is that what my farm will do?
Why is land 58% of the price?
What if my barn is not used for farming?
How were the trees valued?
What are the three election questions?
How is a farm study ordered, and what does it cost?
See your farm's numbers, not a sample's.
A farm study starts with a list: each house and building with its size and what it is used for, the well and irrigation, the fences, and the trees or vines. Send it to us and we reply with a fixed fee and an estimate for your farm.