Legacy Soil & Nutrient Deduction 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 by previous owners.

A Legacy Soil & Nutrient Deduction is a way to measure the economic value of those excess nutrients above normal agronomic levels, and recover that value over time on your tax return. Think of it as basis recovery for a wasting asset—nutrients that get consumed through production.

IRS Publication 225 confirms that fertilizer and soil conditioners are deductible or depreciable farm expenses. Legacy Soil & 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.

No. This is not a credit, a subsidy, or a loophole. It is cost recovery tied to basis—the same principle that applies to depreciation on buildings, equipment, or other business assets.

You paid for the land, and part of what you paid for includes nutrients in the soil. Those nutrients are consumed over time through agricultural production. Recovering that cost is a standard tax concept, not an aggressive position.

In general, you may qualify if:

• You own agricultural land (cropland, improved pasture/ranchland, or managed timberland).
• The land has a history of fertilizer or soil amendment use.
• There is enough excess nutrient value in the soil above baseline levels to be worth measuring.
• You have at least $500/acre in land basis (practical minimum threshold).

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.

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 Section 180 (immediate expensing). Investors and landowners who rent out their land typically use depreciation (§167/168) or depletion (§611) rules instead, recovering the value over several years.

However, straight-cash rental landlords do not qualify for §180 immediate expensing—only for amortization approaches.

When land is inherited, the tax "basis" usually resets to fair market value as of the date of death (stepped-up basis). 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.).

Yes, but with conditions. Timberland must be used for commercial timber production and actively managed (planting, thinning, harvesting, or other silvicultural practices).

Passive landholding or speculative timber ownership does not qualify. If there's agricultural activity between the trees—like grazing or pine straw sales—that strengthens the case.

For timber operations, Section 611 (depletion) is often the appropriate code path rather than §180 or §167/168.

Generally, native pasture and rangeland are not good candidates. The nutrient balance on native pasture is typically very tight—there's usually no "excess" nutrient present because these lands haven't received significant fertilizer applications.

The economics rarely justify the cost of a study on native rangeland. Improved pasture that has been fertilized is different and may qualify.

This is a special situation. Farmers who rented or managed land before purchasing it are generally not allowed to use Section 180 (immediate expensing) because they've already been involved in managing those nutrients and may have deducted fertilizer expenses during the rental period.

However, you may still be eligible for amortization (§167/168) if you can clearly differentiate the rental-period fertilizer expenses from the residual legacy nutrient value at purchase. The key is avoiding "double-dipping"—deducting the same fertilizer twice.

We use hindcasting analysis and historical records to confirm that the legacy nutrient load remained consistent before and after purchase, validating the legitimacy of the deduction.

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.

The key is documentation and how the exchanged value is allocated among land, improvements, and nutrient value. Keep in mind that lower basis from prior deductions carries forward—gain is deferred, not eliminated.

Legacy Soil & Nutrient Deductions are not a brand-new code section. They use existing rules:

• Section 180 – Immediate expensing for active farmers (fertilizer and lime costs).
• Sections 167/168 – Depreciation/amortization over a recovery period (most common, lowest audit friction).
• Section 611 – Depletion, primarily for timber-based nutrient recovery.

The approach simply treats measured excess fertility as a real, documented component of cost that can be recovered under those rules. Your CPA determines which section applies based on your specific situation.

The savings depend on three main things:

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

On some projects, the deduction might equal 10–15% of the land cost or more. 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)

For example, if a $1,700/acre deduction saves you $510/acre in taxes (at a 30% rate) and the study costs $40/acre, that's a 12.75× return on your investment in the analysis.

It depends on your situation and which tax code section applies:

• Section 180 (active farmers) – May allow immediate expensing in one year, but triggers higher scrutiny.
• Sections 167/168 (amortization) – Recovers the value over multiple years (often 5–7 years). This is the most common approach and has the lowest audit friction.
• Section 611 (depletion) – Tied to actual consumption or harvest, common for timber.

We help you and your tax preparer pick a method that matches how you use the land and your broader tax plan.

Not necessarily. There are options:

• Current year – Claim on original return with standard documentation.
• Prior 3 years – May be able to amend returns (subject to statutory limits).
• Older acquisitions – May use Form 3115 (accounting method change) with a §481(a) catch-up adjustment.

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.

Yes. Claiming a Legacy Nutrient Deduction reduces your land’s tax basis by the amount deducted, because it represents a recovery of part of what you paid for the property.

This provides tax savings today, while the lower basis only matters if the land is later sold. For many landowners—especially those holding the property long-term or passing it to heirs—the immediate benefit can outweigh any future impact. As with any basis-related strategy, both the current savings and long-term considerations should be reviewed before claiming the deduction.

Yes, there can be recapture. The conservative assumption is that residual soil fertility is Section 1245 property, meaning gain up to the amount of depreciation/amortization claimed would be recaptured as ordinary income (not capital gain).

The IRS has not issued specific guidance on recapture for soil fertility, so we recommend assuming ordinary income recapture on the full amount claimed. This protects against downside surprises.

For land you plan to hold long-term (or pass to heirs with a stepped-up basis), the current tax savings often significantly outweigh the eventual recapture impact.

It can, depending on timing. A lower basis can mean more gain or recapture if you sell in the near term.

That's why Legacy Soil & Nutrient Deductions are most attractive for land you expect to hold for 5+ years, not for quick flips. During intake, we ask about your disposition plans to make sure this strategy makes sense for your situation.

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.
• Technical guidance (PLR 9211007, MSSP Training 3149-122) outlining documentation requirements.

Legacy Soil & 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—not on some special "approval."

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: soil test reports, baseline explanations, nutrient quantification tables, basis allocation memos, and amortization schedules with rationale.

We design every deliverable with audit defense in mind—because if it's not in the file, it doesn't exist to the IRS.

The IRS only allows this deduction if you can support all four elements simultaneously:

• Beneficial ownership – You own the nutrient asset (not just the land).
• Presence and extent – The nutrients exist and are measurable.
• Prior-owner attribution – Nutrients existed at acquisition, not created by you.
• Exhaustion evidence – The nutrients deplete over time through production.

If any one of these fails, the deduction fails. This framework comes from PLR 9211007 and the MSSP, and forms the backbone of IRS examiner review.

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—specifically, excess above a defensible baseline (like university extension standards or NRCS norms).

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. You can only deduct nutrients above baseline—not all nutrients present.

As a practical matter, properties under 40 acres may not generate enough deduction value to justify the cost of soil testing and analysis. The per-acre economics improve significantly with larger properties.

We also look at land basis—if your basis is under $500/acre, the potential deduction may be too limited to be worthwhile regardless of acreage.

At a high level, the steps are:

• Collect soil samples across the property (typically on 10-acre grids).
• Send samples to an accredited lab to test nutrient levels (usually top 6-7 inches).
• Compare current levels to baseline agronomic standards to identify excess.
• Apply fertilizer replacement prices to that excess to determine economic value.
• Cap total value at land basis (nutrient value cannot exceed what you paid).
• Work with your tax advisor to align that value with the appropriate code section.

In that case we 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 handle assumptions and documentation. Hindcasting requires records of fertilizer applications, crop yields, and soil tests during the ownership period to support the reconstruction.

Primary macronutrients: Phosphorus (P) and Potassium (K) are the most common.

Secondary nutrients: Calcium, Magnesium, and Sulfur may qualify, especially on grazing land or where lime has been applied.

Micronutrients: Zinc, Manganese, Boron, and others may qualify when clearly deficient and agronomically required.

Generally NOT supportable: Nitrogen (too volatile/annual), naturally occurring elements, and nutrients in deeper soil layers beyond the typical 6-7 inch sampling depth.

Not in a negative way. 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. We provide owner-level schedules but defer allocation mechanics to the CPA.

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

The date you become the owner is what matters for basis and timing, and that usually matches the closing date on the purchase contract.