If you have farm clients who have purchased or inherited agricultural land in the past few years, there is a reasonable chance they are sitting on a significant unclaimed tax deduction — one that most CPAs, even those with strong agricultural practices, have not brought to their attention.

That deduction is the IRS Section 180 residual soil fertility deduction. This guide is written specifically for CPAs: what it is, the legal basis behind it, what documentation we provide, and how the filing mechanics work.

The Legal Foundation

IRC Section 180 allows a taxpayer engaged in the trade or business of farming to annually elect to treat as a deductible expense the cost of fertilizer, lime, potash, and other materials that enrich, neutralize, or condition land used in farming.

The mechanism that makes this work for land buyers — not just active fertilizer purchasers — comes from IRS Private Letter Ruling PLR 9211007 (December 1991) and the related Technical Advice Memorandum TAM 1992-11-007. These rulings establish that residual soil fertility present in farmland at the time of purchase or inheritance can be treated as a deductible cost — amortized over the expected useful life of those nutrients — under a Section 180 election or under capitalization principles (Sections 167, 168, or 611 for non-active farmers).

The University of Illinois Tax School, the University of Nebraska Center for Agricultural Profitability, and Iowa State University Extension have all published formal academic analyses confirming the deduction’s validity. This is not a gray area.

Who Qualifies Among Your Farm Clients

Your clients may qualify if they:

• Purchased or inherited farmland in the current tax year (Section 180 election) or within the past three years (amended return possible)
• Are actively engaged in the trade or business of farming — including crop-share landlords in some interpretations
• Did not previously rent and farm the land themselves before purchasing it (they cannot deduct what they already expensed as a tenant)
• Have not yet applied fertilizer to the newly acquired land — this is the critical timing constraint

For clients who are not actively engaged in farming (passive investors, non-farmer heirs), Sections 167, 168, and 611 may provide an amortization path for the residual fertility deduction. These sections do not require active farming but require the deduction to be spread over multiple years.

What We Provide: The CPA-Ready Report

Soil Tax Guys delivers a comprehensive agronomist report that is specifically structured to support the Section 180 deduction documentation requirements. The report includes:

• GPS-verified soil sampling data across the parcel, collected by our certified field technicians
• Laboratory analysis from our accredited laboratory partner, covering phosphorus, potassium, calcium, magnesium, pH, organic matter, CEC, and micronutrients
• Baseline fertility determination — the normal nutrient levels for that soil type in that region — using recognized agronomic methodology
• Excess fertility calculation — the nutrients above baseline — expressed in pounds per acre
• Per-acre dollar valuation using current fertilizer commodity prices at the time of testing
• Total deduction value for the parcel
• Recommended amortization schedule based on expected nutrient depletion
• Professional certification from our Certified Crop Advisor (CCA), affiliated with the American Society of Agronomy

One CPA who has worked with us for years put it simply: “You got documentation. It’s with the purchase of land. Here’s Section 180. This is why we did it. They can’t really argue with it, because there’s nothing really to argue about.”

Filing Mechanics: How This Appears on the Return

For active farmers (Section 180 election):

The deduction is reported on Schedule F. The client makes the Section 180 election by claiming the deduction on a timely filed return for the year of land acquisition. The full deduction may be taken in year one, or it may be amortized over the expected useful life of the nutrients — typically three years, with approximately 60% in year one, 30% in year two, and 10% in year three.

For non-active farmers (Sections 167, 168, 611):

The deduction is capitalized and amortized over the useful life of the nutrients, typically three to seven years. These sections do not require active farming and are appropriate for passive investors or heirs who do not farm the land themselves.

Form 3115 (Change in Accounting Method):

For clients who acquired land in a prior year but did not claim the deduction at the time, filing Form 3115 is generally recommended to notify the IRS of the change in accounting method. Without Form 3115, the IRS may disallow the deduction on an amended return. For first-year acquisitions claimed on a timely return, Form 3115 is not typically required.

Audit Risk: Is This Defensible?

Yes — when properly documented. The IRS does not dispute the existence of the deduction. What they look for is whether the documentation meets the standard established in the 1991 Private Letter Ruling: the taxpayer must establish the presence and extent of the fertilizer, show the level of fertility attributable to the prior owner’s applications, provide a basis for measuring the increase in fertility, and indicate the period over which the fertility will be depleted.

Our report is designed to satisfy each of these requirements explicitly. The soil data is scientific. The valuation methodology is transparent. The agronomist is credentialed. There is no number that is fabricated or estimated without a documented basis.

A Note on IRS Guidance

The IRS has not issued updated formal guidance on Section 180 residual fertility deductions since the 1991 and 1992 rulings. There has been industry discussion about whether additional guidance is forthcoming. We monitor this closely and advise our partner CPAs of any changes. For now, the existing framework is solid and the deduction is regularly claimed without issue.

How to Partner With Soil Tax Guys for Your Farm Clients

We work directly with CPAs and their farm clients across the country. Our process is designed to minimize your administrative burden and maximize documentation quality. Here is how a typical engagement works:

1. You identify a client who has recently purchased or inherited farmland and may not have fertilized yet.
2. You refer them to Soil Tax Guys — or call us directly at (217) 356-5756 to discuss the case.
3. We conduct the soil sampling and deliver the CPA-ready report, typically within a few weeks of sampling.
4. You receive the report, handle the filing, and apply the deduction appropriately.
5. Your client gets a significant tax deduction. You get a stronger service offering and a client who is genuinely grateful.

CPAs: We have helped advisors recover over $2 million in deductions for their farm clients combined.

Call us at (217) 356-5756 or email us to discuss your clients’ situations. We are happy to do a brief eligibility review before any commitment.

A 1031 like-kind exchange is one of the most powerful tax deferral tools available to real estate investors — and it works for farmland too. By exchanging one qualifying property for another, you defer the capital gains tax that would otherwise be due on the sale.

What most farmland 1031 buyers do not realize is that a 1031 exchange does not eliminate the opportunity for an IRS Section 180 deduction. In the right situation, a buyer who uses a 1031 exchange to acquire farmland can stack a Section 180 deduction on top of the capital gains deferral — creating a powerful combined tax benefit.

Quick Primer: How a 1031 Exchange Works

Under IRC Section 1031, if you sell a qualifying investment property and reinvest the proceeds into a like-kind replacement property within a specific timeframe (45 days to identify, 180 days to close), you defer paying capital gains tax on the appreciation.

For farmland, this means a farmer or investor who sells one tract of agricultural land and acquires another qualifying farm property can defer the gain — sometimes indefinitely, since the exchange can be repeated across future transactions.

The key point for Section 180 purposes: the new property you acquire in the exchange has a basis — and that basis can support a Section 180 deduction on its residual soil fertility.

The Critical Question: Do You Have Enough Basis?

In a standard cash purchase, the Section 180 deduction is limited to your cost basis in the land — you cannot deduct more than you paid for it. In a 1031 exchange, your basis in the new property is generally equal to the adjusted basis of the property you gave up (the relinquished property), plus any additional cash you put in (boot).

This exchanged basis is typically lower than the fair market value of the replacement property — because the whole point of the 1031 exchange is that you are transferring built-up equity without paying tax on it.

The practical implication: if the residual fertility value of your replacement property exceeds your transferred basis, you may be limited in how much of the Section 180 deduction you can claim. Your CPA will need to model this specifically for your situation.

However, if you add significant cash boot to the exchange — which many farmland buyers do in a rising land market — that additional investment increases your basis and expands the available deduction.

A Real-World Scenario

Here is an example of how this can work:

Detail	Amount
Relinquished property adjusted basis	$800,000
Boot (additional cash invested)	$600,000
Total basis in replacement property	$1,400,000
Replacement farmland fair market value	$2,200,000
Acres acquired	800 acres
Section 180 residual fertility value	$320,000
Available Section 180 deduction	$320,000 (within basis)
Combined benefit	$800K gain deferred + $320K deduction in year of purchase

In this scenario, the buyer defers a large capital gain through the 1031 exchange and claims a significant Section 180 deduction in the same tax year — against ordinary income. These are two separate tax mechanisms operating simultaneously.

Timing Is Doubly Critical in a 1031 Exchange Situation

1031 exchanges already operate on tight timelines: 45 days to identify replacement property, 180 days to close. Adding a Section 180 deduction to the picture creates an additional urgency:

You must complete soil testing on the replacement property before you apply any fertilizer to it. In a 1031 exchange, you may be acquiring the property at a busy point in the farming calendar — potentially just before planting season, when fertilizer applications are common.

If your Qualified Intermediary or closing documents do not include a note to delay fertilizer applications until soil testing is complete, that window can close before you even have time to think about it.

Contact Soil Tax Guys as soon as you have identified your replacement property — ideally before you close. We can coordinate the soil sampling to happen immediately upon closing, so the deduction documentation is ready before you need to make any agronomic decisions.

What Your Qualified Intermediary and CPA Need to Know

Most Qualified Intermediaries who handle 1031 exchanges are real estate specialists, not agricultural tax experts. They are not thinking about Section 180, and they are not going to mention it to you. It is your responsibility to raise it.

When you are working through a 1031 exchange for farmland, make sure the following parties are informed:

• Your CPA — so they can model the basis calculation and understand how much of the fertility deduction is available given your exchanged basis
• Your Qualified Intermediary — so the closing documentation does not inadvertently authorize fertilizer applications before testing
• Your agronomist (Soil Tax Guys) — so sampling is scheduled immediately at closing

The Combined Benefit: A Significant Advantage for Sophisticated Buyers

The investors who get the most from farmland acquisitions are those who understand and use every available tax mechanism. A 1031 exchange defers capital gains. Section 180 creates an immediate deduction against ordinary income. Used together, they represent a meaningful financial advantage over buyers who use neither — or only one.

In a competitive farmland market, that kind of capital efficiency compounds over time. Buyers who free up cash through tax strategy can move faster on the next acquisition. Those who leave deductions in the soil are working with one hand tied behind their back.

Using a 1031 exchange to buy farmland? Talk to us before you close.
Call Soil Tax Guys at (217) 356-5756 or use the calculator at soiltaxguys.com to understand your Section 180 opportunity.

Purchasing farmland is one of the most tax-efficient investments you can make in American agriculture. The federal tax code contains multiple provisions specifically designed to help farmers and ag investors reduce their taxable income in the year of purchase — and in the years that follow.

The problem is that most buyers only use one or two of them. The rest go unclaimed, not because they are complicated, but because no one told the buyer they existed.

This guide covers every significant tax deduction available when you purchase farmland, with special focus on the one that creates the most value and gets the least attention: IRS Section 180.

IRS Section 180: The Hidden Deduction Built Into the Soil

When a parcel of farmland has been actively managed and fertilized over many years, the soil accumulates residual nutrients — phosphorus, potassium, calcium, magnesium, lime, and others. That stored fertility has a specific, measurable dollar value. When you purchase the land, you are purchasing those nutrients along with the acres.

IRS Section 180 allows you to deduct the value of that residual fertility as a business expense in the year of purchase.

Here is what makes this deduction remarkable:

• It requires no capital expenditure beyond the land purchase itself — you are simply recognizing value that is already there
• The deduction averages over $500 per acre on qualifying land
• On well-managed Midwest cropland or irrigated ground, we have documented deductions of $1,500 to $4,600 per acre
• There is no statutory dollar cap — the deduction is based entirely on what the soil contains

The catch — and it is a significant one — is timing. You must complete soil testing before you apply any new fertilizer to the land. Once you fertilize, the residual fertility cannot be separately identified, and the deduction is permanently lost.

Takeaway: The day you close on farmland, your first call should be to an agronomist. Not after you start farming it. Not next spring. The day you close.

IRS Section 179: Deducting the Equipment You Buy for the New Farm

If you are equipping a new operation or replacing aging equipment in the same year you buy the land, Section 179 allows you to deduct the full purchase price of qualifying equipment in that same tax year — instead of depreciating it over five to seven years.

Qualifying property under Section 179 includes tractors, combines, irrigation equipment, farm vehicles, grain bins, and single-purpose agricultural structures. The 2025 deduction limit is $1,220,000.

Section 179 and Section 180 are completely independent — you can claim both in the same year. A farmer who buys land (Section 180 on the soil) and a new combine (Section 179 on the equipment) in the same year can stack both deductions.

Bonus Depreciation: An Additional Layer on Equipment and Improvements

In addition to Section 179, bonus depreciation allows you to immediately deduct a percentage of qualifying property placed in service during the year. For 2025, bonus depreciation is 40% (it was 100% through 2022 and has been phasing down).

Bonus depreciation applies to new and used qualifying property and can be used on amounts that exceed the Section 179 limit or that are not eligible for Section 179. It applies to equipment, certain land improvements (drainage tile, fencing), and farm buildings placed in service during the tax year.

Unlike Section 179, bonus depreciation is not limited to your taxable income — it can create a net operating loss, which may be carried back or forward.

Farm Building and Structure Depreciation

If the farmland purchase includes existing buildings — grain bins, machine sheds, barns, livestock facilities — those structures are depreciable separately from the land. The IRS classifies them as follows:

• Farm buildings: generally depreciated over 20 years using MACRS
• Single-purpose agricultural structures: may qualify for 7-year MACRS treatment
• Grain storage bins: 7-year MACRS
• Drainage tile and fencing: 15-year MACRS

A cost segregation analysis at the time of purchase can accelerate depreciation by reclassifying components of structures into shorter-lived asset categories. On a farm property with significant infrastructure, this can generate meaningful additional deductions in the early years of ownership.

USDA Cost-Share Programs and Their Tax Treatment

If you participate in USDA conservation programs — EQIP, CRP, or similar — payments you receive may or may not be taxable depending on how you elect to treat them. Generally:

• Cost-share payments for conservation improvements are excludable from income if you elect to do so under IRC Section 126, up to a limit
• CRP annual payments are generally reported as income (but may qualify for the farm income averaging provision)
• Conservation practice payments that are excluded from income cannot also be deducted as an expense

Your ag CPA can help you navigate the interplay of these programs with your overall tax position.

Conservation Easements: When They Make Sense

If your new farmland has conservation value — wetlands, habitat corridors, environmentally sensitive areas — donating a conservation easement to a qualified land trust can generate a significant charitable deduction. The deduction is based on the reduction in fair market value caused by the easement restrictions.

Conservation easements are complex, require a qualified appraisal, and have been subject to IRS scrutiny in recent years (particularly syndicated transactions). Speak with an attorney and CPA experienced in conservation law before pursuing this option.

For most farmland purchases, Section 180 will deliver far more value with far less complexity.

The Timing Checklist: What to Do Before, During, and After Closing

Before closing:

• Ask for any existing soil test records from the seller
• Contact Soil Tax Guys to understand the Section 180 opportunity before you close
• Consult your CPA about your overall tax picture for the year

At closing:

• Confirm the purchase date — this is the tax year for your Section 180 claim
• Do not authorize any fertilizer applications to the new property

After closing (immediately):

• Schedule soil sampling with Soil Tax Guys — before any fertilizer is applied
• Notify your CPA that you are pursuing a Section 180 deduction
• Gather any fertilizer application history from the prior owner if available

Tax filing time:

• Provide the agronomist report to your CPA
• Confirm whether you are electing the full deduction in year one or the 60/30/10 amortization

The Number One Mistake New Land Buyers Make

Every year, farmland buyers across the country apply fertilizer to their new ground before getting soil tested. They are thinking about next year’s crop. They are not thinking about the tax calendar.

That single decision costs them — on average — more than $500 per acre in tax deductions. On a 500-acre purchase, that is $250,000 in deductions that simply evaporate. On a 1,000-acre purchase, it can be half a million dollars or more.

The window to claim Section 180 is small. It opens at closing and closes the moment fertilizer touches that ground. Farmers who know about it protect that window carefully. Those who do not, pay the price without ever knowing they had an option.

Just purchased farmland? Do not fertilize yet.
Use the Soil Tax Guys calculator at soiltaxguys.com to get a free per-acre estimate, or call (217) 356-5756 to schedule soil sampling right away.

If you have spent any time talking to your CPA about farm tax deductions, you have probably heard Section 179 mentioned. You may have even heard Section 180. Most farmers — and, frankly, many CPAs — assume they are the same thing, or that one supersedes the other.

They are not the same. They cover completely different assets. And in the right circumstances, you can claim both in the same tax year.

Here is a clear breakdown of each, and what they mean for your tax situation.

Section 179: Expensing Farm Equipment and Personal Property

Section 179 is the deduction most farmers know well. It allows you to deduct the full cost of qualifying business property — equipment, machinery, and certain improvements — in the year you place it into service, rather than depreciating it over several years.

Under Section 179, qualifying property includes:

• Tractors, combines, planters, and other farm machinery
• Farm vehicles, including trucks used in the farming operation (business use must be substantiated)
• Single-purpose agricultural or horticultural structures
• Irrigation equipment and water systems
• Drainage tile and certain land improvements

The 2025 deduction limit for Section 179 is $1,220,000, with a phase-out beginning at $3,050,000 of total qualifying property placed in service. The deduction cannot exceed your net taxable income from active business activities.

In short, Section 179 is about the physical assets you acquire and put to work on the farm. It reduces the tax burden on equipment purchases that would otherwise be spread out over a five- to seven-year depreciation schedule.

Section 180: The Soil Fertility Deduction Most Farmers Miss

Section 180 is different in almost every way. It does not apply to equipment. It does not apply to improvements. It applies to the soil itself — specifically, to the residual fertility present in farmland when you purchase or inherit it.

When a farmer manages land carefully over many years, they apply fertilizer — phosphorus, potassium, calcium, lime, and other inputs — that accumulates in the soil. That stored fertility has a specific, measurable dollar value. When you buy that land, you are purchasing those nutrients along with the acres.

Section 180 allows you to deduct the value of that residual fertility as a business expense. On well-managed cropland, that deduction commonly ranges from $400 to $2,000+ per acre. On some high-productivity Midwest farmland, we have documented deductions exceeding $4,000 per acre.

The key requirements for Section 180 are:

• You must be engaged in the business of farming
• The land must have been recently purchased or inherited
• Soil testing must be completed before any new fertilizer is applied
• A certified agronomist must document the excess fertility and its value

Side-by-Side Comparison

	Section 179	Section 180
What it covers	Equipment, machinery, vehicles	Residual soil fertility in purchased land
Who qualifies	Any farmer purchasing qualifying property	Farmer who buys/inherits farmland with residual fertility
Timing	Year property is placed in service	Year land is acquired (before fertilizing)
Documentation	Purchase receipts, asset records	Certified agronomist soil test and report
Dollar limit	$1.22M (2025)	No statutory cap — based on actual fertility value
Effect on basis	Reduces basis of the asset	Reduces basis of the land purchased
Can be carried forward?	No (limited to taxable income)	No — must be claimed in year of purchase or via amendment

 

Can You Claim Both Section 179 and Section 180 in the Same Year?

Yes — and this is where it gets interesting for farmers making a large land acquisition.

If you purchase a piece of farmland and also invest in new equipment for that operation in the same tax year, you can claim Section 179 on the equipment and Section 180 on the soil fertility of the new land. These are completely independent deductions applied to different assets.

Example: You purchase 400 acres of Illinois cropland and also buy a new combine ($450,000) in the same year. Your Section 179 deduction covers the combine. Your Section 180 deduction — based on soil testing — covers the residual fertility in the land. On quality Midwest cropland, that Section 180 deduction could easily add $400,000 to $800,000 of additional deductions on top of the equipment write-off.

That is a significant combined tax reduction — from a single year’s activity.

The One Situation Where Section 180 Beats Section 179

Section 179 has an income limitation — you cannot claim more than your net income from active business. If you have a low-income year, your Section 179 deduction may be limited or even zeroed out (though it can be carried forward).

Section 180 does not have the same income limitation concern in the same way. The deduction is tied to the asset itself — the soil — not to equipment placed in service. This makes it a useful planning tool for years when your taxable income from other sources is high and you are looking for a significant offset.

The Most Common Confusion Between the Two

Farmers often ask if they can use Section 179 to expense the cost of fertilizer or soil inputs they purchase for an existing farm. The answer is no — Section 179 does not cover consumable inputs. Fertilizer purchased and applied to land you already own is simply deducted as a farm business expense on Schedule F.

Section 180 is the only provision specifically written to capture the value of fertility that was already in the ground when you bought the land. That is a very specific window — and once it closes (when you fertilize), it never reopens.

Bottom Line

Section 179 should be part of every farmer’s tax planning when they are buying equipment. It is well-known, well-documented, and your CPA has almost certainly used it for you before.

Section 180 is the one most farmers and their CPAs are not using — even when the money is sitting right there in the soil. If you have purchased farmland in the past year and have not yet been soil tested, that deduction is still available to you. But only if you act before your first fertilizer application.

Did you buy farmland in the past 12 months?
Run your free estimate at soiltaxguys.com/section-180-calculator or call (217) 356-5756. It takes two minutes and could change your tax picture significantly.