When agricultural land changes hands, fertilizer, lime and other inputs applied by a previous owner can leave behind residual fertility, sometimes referred to as legacy nutrients, that continues to support production. Under the right circumstances, the value of that residual soil fertility may represent a recoverable tax opportunity through a Section 180 deduction.
For CPAs and tax professionals, the first step isn’t becoming an expert in soil science. It’s recognizing which clients and agricultural properties may warrant a closer look.
Section 180 and Residual Fertility Value, in Brief
Internal Revenue Code Section 180 addresses certain costs for fertilizer, lime and other materials used on land used in farming. When qualifying fertility remains in purchased or inherited agricultural land, a Residual Fertility Valuation (RFV) can help identify, calculate and document its value.
Farmers and tax professionals may also hear terms like legacy nutrients, legacy nutrient valuation, residual fertility or residual soil fertility deduction when discussing this opportunity.
“Section 180” is commonly used as shorthand in residual fertility discussions. The client’s tax professional determines eligibility and the appropriate tax treatment. Advanced Agrilytics provides the agronomic valuation and supporting documentation needed to establish the residual fertility value.
Who May Qualify for a Section 180 Deduction?
While every client’s situation is different, these five agricultural property scenarios may warrant a closer look.
1. Purchased Cropland
A client who purchases productive farmland may also acquire excess fertility attributable to the previous owner’s fertilizer and lime applications. That residual nutrient value may be worth evaluating as part of the land purchase.
Ask: Was the residual fertility acquired with this property ever separately evaluated?
2. Inherited Agricultural Land
Inherited agricultural property may warrant review if qualifying residual fertility existed when ownership transferred.
Ask: When your client inherited the property, was the residual fertility present in the soil ever evaluated?
3. Tenant-Farmed Land
Land farmed by a tenant should not automatically be ruled out. The rental structure and landowner’s participation can affect the applicable tax treatment.
Ask: How is the farmland rented, and what level of participation does your client have in the farming operation?
4. Ranch and Pastureland
Managed pasture with a history of fertilizer or lime applications can present a different opportunity than unfertilized native rangeland.
Ask: Was the pasture or livestock ground regularly fertilized or limed before your client acquired it?
5. Production Timberland
Certain managed timberland may warrant review when previous fertilizer or soil amendment applications left qualifying residual fertility.
Ask: Were fertilizer or qualifying soil amendments applied before your client acquired the timberland?
Don’t Automatically Rule Out Older Farmland Acquisitions
Advanced Agrilytics currently performs Residual Fertility Valuations for qualifying agricultural land purchased or inherited back to January 2010.
And while soil testing before a new owner applies fertilizer is ideal, a missed test does not necessarily end the opportunity.
In some cases, acquisition-date fertility can be reconstructed using forensic agronomy and available field records. This allows an RFV to evaluate the potential residual soil fertility present when the property changed hands, even when ideal acquisition-date data isn’t available.
The applicable tax treatment remains a determination for the client’s tax professional.
What Documentation Is Needed for a Section 180 Deduction?
Identifying a potential candidate is only the beginning. A residual fertility value must also be supported by the agronomy behind it.
Advanced Agrilytics uses field-level soil data, field-specific critical levels, historical nutrient pricing and traceable calculations to determine and document residual fertility value.
For CPAs and tax professionals, the opportunity is straightforward: recognize the client scenario, start the conversation and bring in agronomic expertise when it’s needed.
If you have a client who recently purchased or inherited agricultural land, or you’re wondering whether an older acquisition may warrant a closer look, Advanced Agrilytics can help determine whether a Residual Fertility Valuation makes sense.
Resources for Tax Professionals
For educational purposes only. This content does not constitute tax, legal or accounting advice. Eligibility and tax treatment should be determined by the taxpayer’s qualified tax advisor.