With several recent land purchases across Indiana and Illinois, many clients of Mossy Oak Properties Indiana Land and Lifestyle and Mossy Oak Properties Illinois Land and Lifestyle are asking questions about potential tax deductions associated with their new investments. One such opportunity may be found in IRS Section 180, a lesser-known but valuable tax code for landowners involved in farming operations.
What is IRS Section 180?
Section 180 of the Internal Revenue Code allows taxpayers engaged in the business of farming to elect to expense certain soil-enriching costs rather than capitalize them. Specifically, it permits the deduction of expenditures for fertilizer, lime, ground limestone, marl, or similar materials used to enrich, neutralize, or condition farmland.
Here’s a breakdown of the actual statute:
Section 180(a): A taxpayer engaged in the business of farming may elect to treat certain soil treatment costs as deductible expenses rather than capital expenditures.
Section 180(b): The term “land used in farming” refers to land that is used—either prior to or simultaneously with these expenditures—for producing crops, fruits, or other agricultural products, or for sustaining livestock.
Section 180(c): The election to deduct these costs must be made when filing the return for the tax year in which the land was purchased. However, the IRS may allow amended returns for up to three years after the original filing deadline.
What Does This Mean for You as a Landowner?
If you recently purchased farmland, Section 180 may allow you to deduct the value of residual fertility in the soil at the time of purchase. This fertility—such as nutrients from prior applications of lime or fertilizer—can be viewed as a depreciable asset, providing a potential tax benefit in the year of acquisition.
Important Considerations:
- Timing Matters: The deduction is typically available only in the tax year the land is purchased, though amended returns can sometimes be filed within three years.
- Previous Tenants: If you rented the land before purchasing it, you cannot claim this deduction, as those fertility expenses were likely already deducted.
- Excess Fertility Only: You may only deduct “excess” nutrients—those above normal background fertility levels—not the total fertility load.
- Soil Sampling is Key: To support any deduction, it’s advisable to conduct soil testing before or immediately after purchase, and prior to any new fertilizer application.
Work with a Professional
The value of the residual fertility and its potential deduction can vary widely. We strongly recommend working with a qualified CPA or agricultural tax advisor to analyze your specific situation and ensure compliance with IRS requirements.
If you’re exploring the purchase of farmland or have recently closed on a tract in Indiana or Illinois, our team at Mossy Oak Properties Indiana Land and Lifestyle and Mossy Oak Properties Illinois Land and Lifestyle is here to help you make the most of your investment—both in the field and at tax time.
Let us help you find the ground that works for your lifestyle and goals—and possibly save you money in the process.
