Deducting Excess Soil Fertility
A purchase of farmland may allow you to deduct the excess soil fertility. However, there is very little guidance on this deduction from the IRS.
In today’s blog post we provide an audio webinar on the ability to deduct excess fertilizer when purchasing or inheriting farm property.
The audio recording reviews the rules and the lack of guidance from the IRS on this deduction.
Also, a farmer who purchases land from their landlord and has been deducting the fertilizer as they farm the land is not allowed to do this deduction. It is only when you purchase land that you did not farm that you can deduct the excess fertility.
You are required to be a farmer, so a cash rental landlord also cannot take this deduction.
I think a lot of us could really benefit from some additional information on this topic. I've read all of Paul's articles on excess fertility, but still have unanswered questions. Boa Safra Ag advertises to farmers that they can go back "years" to claim this tax deduction. Are they talking about amending a tax return or is there some special way to claim a deduction in the current year for land purchased 10 years prior? I have also read through their reports and am not satisfied with how they present the information. They never specify the amount of "Excess Fertility" above and beyond the local "average" fertility for farm ground. Their reports seem to just value the nutrients in the soil as is. If those reports indeed give an "excess above average", then they need to do a better job of specifying that information. Every report I've read has found "excess fertility" which I find very hard to believe. I've yet to see a report where the fertility is LESS than the average farm ground in the area. Also, most large farmers that are willing to pay the money for a study probably have their farmland in a separate land LLC. Since they are the landlord, doesn't this mean they aren't allowed to take the deduction or is there some special rule for "self rental" operations?
Excess fertility is eligible for 179 expense deduction, which makes the 3 year amortization irrelevant.