IRS Section 180
IRS Code Section 180 is an opportunity to realize the value of fertilizer nutrients in the soil at time of acquisition (by purchase or inheritance). This residual fertilizer supply can be treated as a deductible input expense for farming operations.
Deduction pathways
New Land Purchase
Long Held or "Legacy" Land
Long Held or "Legacy" Land
New farm land acquired within the last 2 tax years.
Long Held or "Legacy" Land
Long Held or "Legacy" Land
Long Held or "Legacy" Land
This represents land acquired more than 24 months ago and could extend back to January 1, 1960.
Inheirited Land
Long Held or "Legacy" Land
Surviving Spouse
This deduction can be claimed on land inherited.
Surviving Spouse
Contact your Tax Preparer
Surviving Spouse
Discuss the step up basis at the time of death of a spouse. The deduction potential on the "inherited" 1/2 of the land held in common can be addressed in a tax filing.
In-Kind Exchange (1031)
Contact your Tax Preparer
Contact your Tax Preparer
There is a potential to claim the Section 180 deduction on land based on the adjusted basis of the original asset.
Contact your Tax Preparer
Contact your Tax Preparer
Contact your Tax Preparer
Your CPA is needed to navigate the complexities of this deduction. This is one of the most overlooked deductions, but is one of the more complex filings.
Documents Necessary to File this Deduction
Required Components of the Application
Outlined in IRS Private Letter Ruling, PLR 9211007, December 3, 1991
Although in IRS Technical Advise Memorandum (T.A.M.) 1992-11-007 a corporation was denied amortization deductions because it was not the beneficial owner of the fertilizer, it went on to say that in order to amortize the cost of fertilizer acquired with land, the taxpayer must
1. Establish the presence and extent of the fertilizer.
2. Show the level of soil fertility attributable to fertilizer applied by the previous owner.1
3. Provide a basis upon which to measure the increase in fertility in the land.
4. Provide evidence indicating the period over which the fertility attributable to the residual
fertilizer will be exhausted.
Beneficial Land Ownership
This deduction can only be taken by the beneficial owner of the land and nutrients and this must be established in the filing.
Sampling to Determine Nutrient Levels
Sampling of the nutrients present in the land must be conducted under rigorous standards to create defensible documentation.
Valuation of Nutrients
Nutrient valuations must be made by qualified personnel that have extensive knowledge of fertilizers, laboratory analysis, and the costs associated with nutrient use and their application.
Depletion of Nutrients
The use of historic information must accompany documentation regarding usage of the land to substantiate the claims that the nutrients are finite and are being consumed as part of ongoing farming practices.
Report
A final report must be included in the client’s file outlining the amounts, values, and validation of depletion of residual nutrients in each parcel of land that is examined to meet guidelines as outlined in the most commonly cited Private Letter Ruling.