The current IRS tax code is 74,600 pages long. In book form it would stretch 36 feet high, in case you want a climbing challenge! But according to Tyler Bruch, founder and CEO of Boa Safra Ag, there’s one paragraph in that code that has the potential to save some farmers thousands of dollars through tax deductions. But most landowners have never heard about it before.
RELATED: The IRS Farmer’s Tax Guide, Publication 225, can be accessed here.
So, what are we talking about here? This must be something new, right? As a matter of fact, it’s been around for a long time. The little-known code was written and passed by Congress in 1960. According to Section 180, the IRS allows owners of agriculture land to deduct the residual fertility value of nutrients in their soils at the time of acquisition.
RELATED: The University of Nebraska Center for Agricultural Profitability explains Section 180 and how it works. Read that here.
That means purchasers of agriculture land can depreciate the value of fertilizer ingredients that are present in the soil at the time of purchase in the same way as other capital items such as fencing, equipment or structures. To capture these deductions, owners need to put a number on the volume and value of these nutrients in their farm soil. That’s where Boa Safra Ag comes in.
When the company is hired, it goes through three steps with landowners:
1. Sampling Soils – This involves measuring existing micro and macronutrients at multiple depth levels.
2. Establishing Nutrient Values – Once nutrient volumes are determined, the company determines the market value of those nutrients based on public pricing information. In other words, they want a snapshot of what it was like at the time of purchase.
3. Generating Comprehensive Reports – These range from dozens to hundreds of pages depending on the land, enabling owners and CPAs to file returns.
Bruch, who owns a farm in Nebraska, pointed out that the land must actively use the soil nutrients which means Conservation Reserve Program (CRP) land does not qualify. Land acquired through inheritance is also not eligible to use this tax benefit.
RELATED: The National Sustainable Agriculture Coalition lays out requirements to be eligible for the Conservation Reserve Program. Check those out here.
Even if you’ve owned the land for a while, you can still take advantage of the deduction through either an amended return or by filling a 3115 form with the IRS. But it doesn’t work for everyone.
Bruch puts it like this: “If you’ve had the land for fifteen to twenty years, it makes sense. Anything beyond that doesn’t make a lot of sense. That’s because there wouldn’t be enough value to generate a number that would be sizable.”
Company figures show that the average deduction is $1,700 per acre. The higher the fertility, the higher the deduction. Deductions can also be spread over several years depending on the situation.
From start to finish, the process takes about 60 days to complete and costs $40 per acre of land. “So, think about it,” Bruch said, “If you get a $1,500 deduction and you are in a 30 percent tax bracket, that’s about a $500 per acre savings. There aren’t many things we can do as farmers today that can make 500 bucks an acre.”
Tyler Bruch led a discussion about Section 180 and farmland tax deductions during the 2024 Land Investment Expo in Des Moines, Iowa. Written by: Brooke Bouma Kohlsdorf Edited by: Dave Price
