Can dirt be used as a deduction for home owners?

Question

we bought our house 3 years ago. The first year, we had no grass and we had to haul in hundreds of dollars worth of dirt to cover the contractor's clay dirt, then put down sod. Well we didn't put enough dirt down and the grass couldn't grow strong enough roots in the soil so it all died. We had to re-do it again this last year, costing another few hundred in dirt. Would this warrant a deduction or do you think we'd be audited for it... We SPENT a lot on the yard the first year and DID deduct it. I'm afraid if we do it again we will get in trouble. I dont know though. What are the "Rules" on this?

Answer 1

You can only deduct it if you use your yard for a home business.  If they look closely at your taxes the first time, you would have gotten a letter from the IRS saying "nice try".  Maybe there is some special exception you meet that the rest of the world isn't aware of (???).  At best you can track the $$ you spend and increase your homes cost basis when you sell.

Answer 2

One way to deduct it from your taxes is if you used your home equity loan to purchase the dirt and then only the interest on the purchase is tax deducatble.  The dirt itself is not directly deductable (but see below).  

If you are running a business from your home then depreciation on your improvements (dirt) could be deductable on the 1040 long form and related business forms - I do not know which exact form it is.  But then it might reduce your business profit if all conditions are right (in their screwy formula and IF you have a profit) and even if it does reduce it it will only be a fraction since you are only using a small fraction of your house as the business.  Thus for a 'possible' small fraction of a few hundred for dirt it is not worth it and I do not bother with it.

The purchase of dirt itself is not deductable but yet is is sort of deductable when selling your home.  You add it as home improvements $$$ and add it to the cost of your home and then it reduces your profits when you sell your home for more than you bought it for- ie profit.  You have to show a profit on the sale of your home but I think they allow a large amount of home profit without taxes being applied.  I seem to remember $150,000 in profit you can take home before they ask for taxes on anything over $150,000.  I could be wrong in the details but I think my concepts are correct.

Answer 3

I wouldn't have thought you could have deducted it the first time.  Whoever advised you of it the first time...ask them about this time.