Section 180 Deductions
Land Used in Farming & Deductible Costs for Agricultural Production
Pre-existing soil fertility can potentially provide a vehicle for Section 180 Tax Deductions, given certain qualifications on farmland purchased or inherited.
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Have your purchased or inherited farmland in the last year? 3 years? up to 15 years ago? If so, you may qualify for an IRS Section 180 tax deduction. Our most satisfied clients who've inherited farms or recently investing in farms or land used in their qualified farming operation can attest to the value we add by helping them uncover additional tax deductible benefits. Since 1977, we've advised & helped landowners & investors navigate the successful purchase of farmland, and maximize the value for the best returns. Whether it's hundreds of acres or the family farm; Start a Conversation Today.
Challenges
While the first steps & questions may seem overwhelming, we’ve been helping landowners like you Since 1977.
Wondering how you can maximize the value of your recent farmland investment? or seeking additional improvements that are tax deductible on a farm?
Do you have a CPA who is familiar with the process? If not, we can help. Unsure if you qualify?
While somewhat complex, with proper documentation, the process can be very smooth and friction free.
Answers & Solutions
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Known as segregating fertility costs, or deducting residual soil fertility, Section 180 allows farmers and qualified landowners to elect to deduct the cost of “fertilizer, lime, ground limestone, marl, or other materials to enrich, neutralize, or condition land used for farming.” If a farmland owner does not make this election, the cost of the fertilizer or other material is amortized over the useful life of the material.
Remember, if the farmland was previously rented and the fertility costs were already deducted, they may not be deducted again. Proper documentation is essential for claiming the Section 180 deduction.
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"We care deeply about our clients and the work we do to solve family farm inheritance and undivided ownership challenges. Since 1977 our team has helped landowners through the challenges & success stories of the once-in-a-lifetime sale of the farm or inherited land."
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Concerns with Section 180
- Complexity and Understanding:
- Many landowners find the specifics of the Section 180 tax code complex and difficult to understand. They may fear incorrectly interpreting the regulations, leading to potential errors on their tax returns (CropWatch) (National Land).
- Documentation and Compliance:
- Proper documentation is essential for claiming the Section 180 deduction. Landowners may worry about the accuracy of soil sampling and the requirement to prove “excess” fertility levels. Fears about maintaining adequate records and the potential for audits also cause concern (U of I Tax School).
- Eligibility and Restrictions:
- Concerns about whether their expenditures qualify for the deduction and the possibility of restrictions or limitations on what can be deducted are common. For example, if the land was previously rented and the fertility costs were already deducted, they cannot be deducted again (Center for Agricultural Profitability) (LII / Legal Information Institute).
- Tax Implications and Recapture:
- There are fears about the long-term tax implications, such as the recapture of deductions if the land is sold later. The recaptured amount is treated as ordinary income, which could lead to a higher tax liability compared to capital gains treatment (U of I Tax School).
- Economic Viability:
- Soil testing is increasingly more efficient and cost effective. While some landowners question whether the deduction will provide significant tax savings, considering the costs associated with soil testing and documentation it is often very well worth the time and effort. Many farmland owners are able to realize over $1,000 per acre in benefits
These concerns highlight the importance of consulting with a knowledgeable tax professional or CPA who can guide landowners through the process and ensure they maximize the benefits while remaining compliant with IRS regulations.
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