What expense category is Soil Testing and Site Survey Fees?

Before breaking ground on any construction project, it is essential to conduct due diligence on the land itself. This involves hiring professionals to conduct site surveys to establish boundaries and perform geotechnical tests to assess the soil's stability. The fees paid for these critical services are a necessary and significant cost of any building project.

However, a standard and critical tax error is to treat these fees as a currently deductible professional expense. The IRS views site survey and testing costs as an integral part of acquiring or improving a long-term asset, and their cost must be capitalized. This guide explains how to categorize these expenses correctly according to IRS rules, ensuring your business remains compliant.

Soil Testing and Site Survey Fees Category

The fees you pay for professional site surveys and soil testing for a construction project are capital expenditures. They are not a currently deductible business expenses.

According to the principles in IRS Publication 535, costs to acquire, produce, or improve a tangible asset must be capitalized. Site survey and testing fees are considered a direct cost of preparing your land for its intended use and must be added to the property's basis.

Important Considerations While Classifying Soil Testing and Site Survey Fees

The most critical factor is that these pre-construction professional fees are part of the land's capital cost, not an operating expense.

Costs Are Added to the Basis of the Land

You cannot deduct site survey and soil testing fees in the year they are paid. These costs are added to your total capital investment (your basis) in the land itself. This applies to fees for:

• Land surveys conducted to determine boundaries, topography, and other features.
• Geotechnical soil testing to assess the suitability for construction.

Land Is Not Depreciable

This is a key tax principle. As explained in IRS Publication 946, you can never depreciate the cost of land. Because site survey and soil testing costs are added to the land's basis, you cannot recover these costs through annual depreciation deductions.

When Are These Costs Recovered?

The only time you recover these capitalized costs for tax purposes is when you sell the land. At that point, your higher basis in the land (which includes the survey and testing fees) will reduce your taxable gain or increase your deductible loss on the sale.

Tax Implications and Recordkeeping

The tax treatment for these fees requires capitalization, not a standard expense deduction.

How to Report the Costs

You do not report site survey and soil testing fees as an expense on your Schedule C. Instead, these costs are recorded on your company's balance sheet as an increase to the value of the land asset.

What Records to Keep

It is essential to maintain meticulous records of all site analysis activities to calculate the adjusted basis of your land accurately. Your records must include:

• The contract or service agreement with the surveying or engineering firm.
• The final survey and soil testing reports.
• Invoices from the firms detailing the services provided.
• Proof of payment for all fees.

How Fyle Can Automate Expense Tracking for Survey and Testing Fees

Fyle helps you capture and organize all the professional fees associated with a construction project, providing a clean record for your accountant to handle capitalization correctly.

• Centralize Professional Invoices: Forward and attach your surveying and engineering firm's email invoices to Fyle for automatic capture and processing.
• Track by Construction Project: Code all survey fees and related costs to a single project for precise cost aggregation.
• Create a Clear Audit Trail: Fyle consolidates contracts, final reports, and invoices into a single, easily accessible digital record.
• Automate Your Accounting: Sync capitalized project costs to the correct fixed asset account in QuickBooks, Xero, NetSuite, or Sage Intacct.