Land Nutrient Deductions FAQs

When you buy farmland, you aren't just buying "dirt." You're also buying the fertilizer and nutrients that are already in the soil because of past applications.

A Land Nutrient Deduction™ is a way to measure the economic value of those nutrients and treat that value as something you can deduct or recover over time on your tax return.

IRS Publication 225 confirms that fertilizer and soil conditioners are deductible or depreciable farm expenses. Land Nutrient Deductions™ build on that idea using modern soil testing and valuation.

Publication 225 has talked about deducting fertilizer for years, but it was written long before GPS grid sampling, advanced soil labs, and modern valuation tools were common.

Most advisors only deducted the fertilizer you buy and apply each year. They never tried to measure the nutrient value that already exists in the soil at the time of purchase, even though the underlying IRS concepts (fertilizer expenses, basis allocation, depreciation, depletion) have been around for a long time.

In general, you may qualify if:

• You own agricultural land (cropland, ranchland, certain timber / mixed-use farms).
• The land has a history of fertilizer or soil amendment use.
• There is enough nutrient value in the soil to be worth measuring.

It doesn't matter whether the land is owned personally, through an LLC, partnership, or trust. What matters is agricultural use and supportable nutrient value. Publication 225 takes a broad view of what counts as a "farm," including ranches, ranges, orchards and similar operations.

No. You do not have to personally operate the farm to benefit from nutrient value.

Active farmers may be able to deduct fertility more quickly under special rules (like Section 180). Investors and landowners who rent out their land typically use depreciation or depletion rules instead. Publication 225 explains all of these options in its chapters on farm expenses, basis, and depreciation.

When land is inherited, the tax "basis" usually resets to fair market value as of the date of death. Nutrient value can be part of that fair market value if it can be measured and supported.

Publication 225 describes how inherited property gets its basis and explains that basis can be allocated among different components of value (land, improvements, resources, etc.).

In a 1031 exchange, your basis carries over in a special way. You can still allocate basis to nutrient value as part of the replacement property if the facts support it.

Publication 225 and other IRS guidance describe how basis works in nontaxable exchanges. The key is documentation and how the purchase price (or exchanged value) is allocated among land, improvements, and nutrient value.

Land Nutrient Deductions™ are not a brand-new code section. They use existing rules, mainly:

• Fertilizer and soil improvements – discussed in Publication 225's farm expense chapter.
• Basis of assets – how the cost of land and improvements is tracked.
• Depreciation (IRC §167/§168) – recovering the cost of certain assets over time.
• Depletion (IRC §611) – recovering the value of certain natural deposits.

The Land Nutrient approach simply treats measured excess fertility as a real, documented component of cost that can be recovered under those rules.

The savings depend on three main things:

• How much nutrient value is documented in the soil.
• What those nutrients would cost to buy as fertilizer.
• Your tax bracket and overall tax situation.

On some projects, the deduction might equal 10–15% of the land cost. On others, the soil may be too depleted to support a meaningful deduction. That's why the soil science and documentation come first, and the tax strategy follows.

Cash-on-cash return is just a simple way to see if the study is worth it:

Cash-on-cash savings = (Tax savings from deduction) ÷ (Cost of the study)

Publication 225 doesn't use that phrase, but it does explain how deductions reduce taxable income. We simply compare those tax savings to the cost of measuring and documenting the nutrient value.

It depends on your situation:

• Active farmers may be able to deduct certain fertility costs in the year they are incurred under rules like Section 180.
• Other landowners often recover the value over time using depreciation or depletion schedules (multi-year recovery).

Publication 225 explains these approaches in the chapters on farm expenses and depreciation/depletion. We help you and your tax preparer pick a method that matches how you use the land and your broader tax plan.

Some options are tied closely to the year of acquisition; others allow you to use the deduction over time, even for prior-year purchases, as long as basis and timing rules are respected.

That's why your acquisition date, your current year, and your filing history are all part of our intake process. We want to make sure any deduction is taken in a way that lines up with IRS rules and with what's already been filed.

Yes. Any time you deduct or recover part of what you paid for property, your basis is adjusted downward by that amount. Publication 225 explains this general rule in its chapter on basis.

Practically speaking: you may get tax savings today, and a lower basis tomorrow, which can affect gain or recapture if the property is sold. We always recommend modeling both sides (current savings and future impact) before deciding how aggressively to use the deduction.

It can, depending on timing. A lower basis can mean more gain or recapture if you sell in the near term. For land you plan to keep for many years, the current tax savings often outweigh the eventual impact.

That's why Land Nutrient Deductions™ are most attractive for land you expect to hold for a while, not for quick flips. We walk through this with you as part of planning.

The IRS doesn't maintain an "approved strategies" list. What it does provide is:

• Rules showing that fertilizer and soil conditioners are deductible or depreciable farm expenses.
• Rules on how basis is allocated and recovered through depreciation or depletion.
• Recordkeeping and documentation expectations for deductions.

Land Nutrient Deductions™ apply those existing rules to a specific type of value: the excess nutrients already in the soil. The strength of any claim depends on the quality of the science, valuation, and paperwork.

In an audit, the IRS will generally ask:

• What is this deduction for?
• How did you calculate it?
• Where is your support (soil tests, valuation, workpapers)?

Our role is to help your advisor answer those questions with clear, organized documentation that ties everything back to Publication 225 concepts and standard tax rules.

In many cases, yes. Publication 225 allows ordinary and necessary farm business expenses, which generally include professional fees related to managing the farm or farm-related tax matters.

Your tax advisor will decide whether those fees are deducted currently or added to basis and recovered over time, depending on how the work is structured.

For a nutrient to support a deduction, there needs to be real economic value — enough that a buyer would reasonably pay for it.

If soil tests show a nutrient is at or below normal agronomic levels, or the economic value is negligible, it may be assigned $0 to stay conservative and aligned with IRS expectations that deductions have economic substance.

At a high level, the steps are:

• Collect soil samples across the property (often on a grid or zone basis).
• Send samples to an accredited lab to test nutrient levels.
• Compare current levels to "normal" agronomic needs to identify any excess.
• Apply fertilizer prices to that excess to determine an economic value.
• Work with your tax advisor to align that value with basis, depreciation, or depletion rules.

Publication 225 stresses good recordkeeping for all farm deductions. We design the process with that expectation in mind.

In that case we may use "hindcasting" — a method that combines today's soil data with cropping history and known depletion rates to estimate nutrient levels at the time of purchase.

The longer the time gap, the more carefully we need to handle assumptions and documentation. Publication 225 doesn't spell out hindcasting directly, but it does require that any basis and deductions be reasonable and supported with records and explanations.

Not in a negative way. Publication 225 recognizes farms operated through entities like corporations and partnerships. The main difference is just where the deduction lives:

• The entity claims the deduction or basis adjustment.
• The impact flows through to owners via returns such as Schedule K-1.

We coordinate with your existing tax team to make sure the numbers land in the right place on the entity and owner returns.

Tax ownership usually begins on the closing date, not the date you first walked the farm or signed an early letter of intent.

Publication 225's discussion of basis and property acquisition follows this same idea: the date you become the owner is what matters for basis and timing, and that usually matches the closing date on the purchase contract.