Section 180: A Hidden Gem for Farmers
Discover How Residual Fertilizer Deductions Can Boost your Bottom Line
Key Takeaways:
- Farmers can deduct residual fertilizer value on newly purchased or inherited land under Section 180.
- A soil analysis and records of past treatments are needed to claim the deduction.
- IRS rules may change in 2025, so staying informed is key.
When margins are tight, as they often are in farming, every dollar saved matters. While the tax code can feel like an overwhelming maze, it also holds opportunities to ease the financial burden of land ownership and farm operations. One such opportunity is the Section 180 deduction, a provision designed to help farmers offset income by deducting the value of residual fertilizer in newly purchased or inherited farmland.
At first glance, Section 180 might seem complex, but it’s worth exploring—especially if you’ve recently acquired land or plan to do so in the near future. Here’s what you need to know to decide if this deduction is right for you.
What Is the Section 180 Deduction?
IRS Section 180 allows landowners to deduct soil and water conservation expenditures, including the value of residual fertilizer in farmland. This deduction applies to the pre-existing fertility of the soil, which contributes to crop yields over multiple growing seasons.
For farmers who have recently purchased or inherited land, this deduction can be a valuable way to offset income, especially if the soil already contains nutrients that will support production.
How Does It Work?
The process starts with evaluating the existing fertility of the soil. For example, if the farmland you’ve purchased or inherited has residual lime, gypsum or other soil amendments, these can count toward the deduction. Factors like organic matter content, fertilizer application history and crop rotation practices also play a role in determining the soil’s residual value.
Aaron VonFeldt, Principal at Adams Brown and ag team member, explains,
“We work with your agronomist to determine a value of the pre-existing soil fertility on land purchased in the current year and can potentially go back to land purchased in years past. This can be a significant deduction for farmers and should be something they consider when making a land purchase.”
By partnering with an agronomist, farmers can accurately assess and document the fertility value. This information is important for claiming the deduction and avoiding potential issues with the IRS.
How to Claim the Deduction
Claiming the Section 180 deduction requires a mix of technical expertise and accurate record-keeping. Here’s how to approach it:
- Soil Testing & Evaluation
Start by consulting with an agronomist or soil scientist who can analyze your land’s fertility. Soil samples are tested to quantify the nutrients and amendments already present, such as lime, gypsum or compost. These experts help establish a residual fertilizer value that forms the basis of your deduction. - Document Farming Practices
If the soil fertility stems from past practices like fertilizer applications, lime treatments or crop rotations, ensure you have records of these activities. Proper documentation is necessary for compliance and may enhance the deduction’s value. - Consult an Ag-Focused CPA
Work with a CPA who specializes in agriculture, like Adams Brown. They will guide you in calculating the deduction based on the soil evaluation and ensure its accurately reported on your tax return. They’ll also help you navigate IRS guidelines and stay informed about any changes to the rules. - Stay Updated on IRS Guidance
The IRS occasionally updates regulations related to Section 180. Keeping up with these changes ensures you’re maximizing the deduction while staying compliant. A qualified agribusiness accountant can help you adapt as new information becomes available.
Is It Worth It?
For many farmers, the answer is yes. The Section 180 deduction can offset a substantial amount of income, particularly if the land’s residual fertilizer value is high. However, the process requires precision. Without proper soil analysis and documentation, you could miss out on the full benefits—or worse, face challenges from the IRS.
VonFeldt advises farmers to stay informed as guidance from the IRS evolves, saying,
“We expect some additional guidance from the IRS later in 2025 that may change how this deduction is taken, and we will advise landowners as new information comes out.”
Farming is a business of margins, and the Section 180 deduction is one more tool to help improve your bottom line. By working with an agronomist and Adams Brown, you can navigate the intricacies of this tax provision and make the most of the opportunities it offers. Contact an Adams Brown farm accountant to discuss your tax situation.
