WASHINGTON, DC – Farmers buying farmland should use caution before claiming large Section 180 deductions for residual fertilizer and minerals already in the soil, according to a new Farm Bureau analysis.
The analysis says Section 180 clearly allows farmers to expense fertilizer, lime and similar soil amendments they purchase and apply. However, deductions tied to residual fertility on newly acquired land remain legally unresolved, with no court ruling, regulation or revenue ruling specifically endorsing the practice.
Farm Bureau says some promoters advertise deductions ranging from hundreds to thousands of dollars per acre. A 500-acre purchase with a $2,000-per-acre residual fertility claim could produce a $1 million deduction, but a disallowed claim could create substantial penalties, interest and legal costs.
The Internal Revenue Service has previously said taxpayers would need to document that residual fertilizer from the prior owner is present, measurable and being used by crops. Soil testing and ownership documentation therefore remain important.
Farm Bureau recommends producers weigh first-year tax savings against audit risk and seek qualified tax and legal advice before using aggressive residual fertility valuations.
Farm-Level Takeaway: Section 180 remains useful for purchased fertilizer expenses, but aggressive residual fertility claims can create significant tax, penalty and audit exposure.