Why Soil Fertility Should Be Part of Farmland Due Diligence

Farmland buyers are doing more due diligence than ever before.

Before purchasing a farm, a serious buyer may evaluate soil productivity, drainage, historical yields, cash rents, improvements, comparable sales, water availability, and dozens of other factors that could affect the long-term performance of the property.

But there is another part of the asset that is often overlooked:

The fertility already sitting in the soil.

Existing soil fertility can have significant economic value. And for qualifying farmland purchases, that fertility may also create an opportunity for a Section 180 soil fertility deduction.

That is why soil fertility should be part of the farmland due diligence process.

Adding Section 180 to Farmland Due Diligence

When recent soil tests are available, Soil Tax Guys can review the results and develop a preliminary estimate of the property’s potential Section 180 soil fertility value.

This gives a prospective buyer another layer of information to consider before purchasing the farm.

Most farmland due diligence already asks questions like:

• What is the farm’s soil productivity?
• What have historical yields been?
• Is the farm adequately tiled?
• What is the current rental income?
• How does the purchase price compare with recent sales?
• What capital improvements may be required?

There is another question worth asking:

What fertility already exists in the soil, what could it be worth, and could it create a meaningful Section 180 deduction opportunity after acquisition?

What Is a Preliminary Section 180 Soil Fertility Estimate?

There is an important distinction between a preliminary Section 180 estimate and an official Section 180 soil fertility report.

A preliminary estimate is a due diligence tool.

When soil-test results are available, Soil Tax Guys can analyze the nutrient levels and estimate the potential value of the existing excess soil fertility.

This allows a prospective buyer to understand whether a meaningful Section 180 opportunity may exist before purchasing the property.

The preliminary estimate is not the final report used to support a tax position.

If the buyer ultimately acquires the property and decides to pursue the deduction, Soil Tax Guys can complete the official Section 180 soil fertility valuation and supporting report for the buyer and their tax professional.

The distinction is simple:

Before acquisition: Estimate the potential opportunity.

After acquisition: Document and support the actual Section 180 soil fertility deduction.

Soil Tests Can Tell You More Than Fertilizer Needs

Most people think about soil testing from an agronomic perspective.

How much phosphorus is available?

How much potassium?

What does the farm need for the next crop?

Those are important questions, but during a farmland acquisition, soil-test data can potentially tell a buyer much more.

Existing nutrients represent an asset already present in the soil at the time of purchase.

Understanding those nutrient levels can help a buyer evaluate:

• The fertility profile of the property
• Potential future fertilizer requirements
• The estimated replacement value of existing fertility
• Whether excess fertility may exist
• The potential size of a Section 180 soil fertility deduction

The same soil-test data used to make agronomic decisions can become another layer of financial due diligence.

Two Similar Farms Can Have Very Different Fertility Values

Consider two farms with similar acreage, productivity ratings, historical yields, and purchase prices.

On paper, they may appear nearly identical.

But their soil tests could tell a very different story.

One farm may contain substantially greater quantities of existing phosphorus, potassium, and other nutrients than the other.

That difference matters.

If you are purchasing farmland, you aren’t just acquiring acres. You are acquiring the physical characteristics and improvements of that property—including the fertility already present in its soil.

Understanding that fertility can provide a more complete picture of what you are actually buying.

Section 180 Can Change the Economics of a Farmland Acquisition

Farmland investors routinely evaluate acquisitions based on purchase price, cash rent, expected appreciation, financing costs, taxes, and projected returns.

Potential Section 180 soil fertility value adds another consideration.

A buyer evaluating a farm can ask:

How much existing fertility am I acquiring?

What is the estimated value of that fertility?

Could some of that fertility qualify for a Section 180 deduction?

How could that potential deduction affect the after-tax economics of the acquisition?

Section 180 should not determine whether a farm is a good investment.

But when a meaningful deduction opportunity exists, it can be an important component of understanding the complete economics of the transaction.

When Should You Evaluate Section 180?

Ideally, before you buy the farm.

If soil tests are already available during due diligence, they can be reviewed to develop a preliminary estimate of the potential Section 180 soil fertility value.

That gives the buyer an opportunity to understand the potential tax benefit while evaluating the acquisition—not months after the transaction is complete.

If adequate soil testing is not available, the buyer can plan for appropriate testing as part of the acquisition process.

The important point is to think about Section 180 early.

Make Soil Fertility Part of Your Farmland Due Diligence

Farmland is a complex asset.

The more information you have before purchasing it, the better you can understand what you are actually acquiring.

Soil productivity matters.

Drainage matters.

Yield history matters.

Income matters.

Comparable sales matter.

Existing soil fertility matters, too.

At Soil Tax Guys, our goal is to make soil fertility analysis another standard component of farmland acquisition due diligence.

Buying Farmland? Have the Soil Tests Reviewed Before You Close.

If you are evaluating a farmland purchase and soil tests are available, send them to Soil Tax Guys.

We can review the results and provide a preliminary estimate of the property’s potential Section 180 soil fertility value so you can understand whether a meaningful opportunity may exist before you buy.

If you ultimately acquire the property and decide to move forward with Section 180, we can then complete the official soil fertility valuation and supporting report.

Before you buy the farm, understand what is already in the soil.

Contact Soil Tax Guys to have us review the soil tests for a property you are considering purchasing.

Section 180 treatment depends on the facts and circumstances of each transaction. Soil Tax Guys provides soil fertility valuation and agronomic analysis and does not provide legal or tax advice. Buyers should consult their tax professional regarding eligibility and tax treatment.