Under old law, owners of a citrus grove could write off the cost of replanting citrus plants in case of blight or other kinds of damage, as opposed to being required to capitalize such costs under the Sec. 263A Uniform Capitalization rules (UNICAP). The TCJA maintains that law but expands the list of eligible taxpayers to include (a) new owners who didn’t suffer the actual damage but who purchased the grove after the damage had been done and (b) new partners in the partnership that owned the grove at the time of the damage, as long as the original partners retain at least a 50% ownership in the partnership.
To accommodate this law change, the IRS has issued Rev. Proc. 2018-35, modifying Rev. Proc. 2018-31 to add a new automatic accounting method change. The method change applies to a taxpayer who:
- Paid or incurred costs of replanting citrus plants after the loss or damage of citrus plants resulting from freezing temperatures, disease, drought, pests, or casualty.
- Paid or incurred the replanting costs after December 22, 2017, and on or before December 22, 2027.
- Satisfies an ownership test.
- Wants to change its method of accounting from applying IRC Sec. 263A to citrus replanting costs to instead deducting those costs.