LUBBOCK, Texas (RFD-TV) — Farmers weighing whether to claim a residual fertility deduction face a growing number of legal and tax risks, according to guidance from Tiffany Lashmet, Texas A&M AgriLife Extension Ag Law Specialist.
The deduction — historically used to expense unexhausted fertilizer embedded in purchased farmland — has expanded in recent years to include much broader claims tied to the full nutrient content of soils. Lashmet cautions that these newer approaches lack clear legal support and may expose producers to IRS scrutiny.
At the core of the issue is Section 180 of the Internal Revenue Code, which allows farmers to deduct the cost of fertilizer, lime, and similar materials in the year they are applied. For decades, some farmland buyers have allocated a portion of the land purchase price to unexhausted fertilizer applied by prior owners. While no statute or court case explicitly endorses this, a 1991 IRS technical memo outlined conditions under which such a deduction may be permitted. Producers must prove the presence and amount of prior fertilizer, show that it is being depleted, and demonstrate beneficial ownership — meaning the nutrients are inseparable from the land they now farm.
Problems arise when deductions go beyond unexhausted fertilizer to include general soil nutrients or inflated values tied to basic soil composition. Lashmet notes that courts have repeatedly rejected attempts to depreciate soil itself or claim depletion of inherent soil nutrients. Because Section 180 applies only to added fertilizer, claims tied to naturally occurring fertility or long-ago application histories fall well outside the law’s scope.
For producers considering the deduction, documentation is critical. Claims tied to older land purchases, unfertilized pasture, or broad nutrient profiles are especially vulnerable. Lashmet urges farmers and land buyers to work closely with qualified tax professionals and understand the IRS burden of proof before proceeding.
Farm-Level Takeaway: Only properly documented, unexhausted fertilizer applied by prior owners may qualify for Section 180 expensing; broader nutrient-based claims carry significant legal and tax risk.
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