The Farmer’s Guide to Buying New Land: Every Tax Deduction You Should Know

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.