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IRS.gov Website
Publication 225
taxmap/pubs/p225-023.htm#en_us_publink1000218028

25% Limit on Deduction(p30)

rule
The total deduction for conservation expenses in any tax year is limited to 25% of your gross income from farming for the year.
taxmap/pubs/p225-023.htm#en_us_publink1000218029

Gross income from farming.(p30)

rule
Gross income from farming is the income you derive in the business of farming from the production of crops, fish, fruits, other agricultural products, or livestock. Gains from sales of draft, breeding, or dairy livestock are included. Gains from sales of assets such as farm machinery, or from the disposition of land, are not included.
taxmap/pubs/p225-023.htm#en_us_publink1000218030

Carryover of deduction.(p31)

rule
If your deductible conservation expenses in any year are more than 25% of your gross income from farming for that year, you can carry the unused deduction over to later years. However, the deduction in any later year is limited to 25% of the gross income from farming for that year as well.
taxmap/pubs/p225-023.htm#en_us_publink1000218031

Example.(p31)

In 2012, you have gross income of $32,000 from two farms. During the year, you incurred $10,000 of deductible soil and water conservation expenses for one of the farms. However, your deduction is limited to 25% of $32,000, or $8,000. The $2,000 excess ($10,000 − $8,000) is carried over to 2013 and added to deductible soil and water conservation expenses made in that year. The total of the 2012 carryover plus 2013 expenses is deductible in 2013, subject to the limit of 25% of your gross income from farming in 2013. Any expenses over the limit in that year are carried to 2014 and later years.
taxmap/pubs/p225-023.htm#en_us_publink1000218032
Net operating loss.(p31)
The deduction for soil and water conservation expenses, after applying the 25% limit, is included when figuring a net operating loss (NOL) for the year. If the NOL is carried to another year, the soil and water conservation deduction included in the NOL is not subject to the 25% limit in the year to which it is carried.