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.
Tony St. James, RFD-TV Markets Specialist
As I try to catch up on my writing after being on the road for a lengthy time, I have several recurring themes in my legal work. Another potpourri of random ag law and tax issues — that is the topic of today’s Firm to Farm blog post by RFD-TV Agrilegal Expert Roger McEowen.
October 31, 2023 02:21 PM
·
Gov. Sarah Huckabee Sanders spoke with RFD-TV’s own Susan Alexander this Monday morning on the Market Day Report to explain Arkansas’s recently passed giving lawmakers greater authority to sanction foreign ag-land ownership within the state.
October 30, 2023 12:51 PM
·
In today’s blog post, RFD-TV Agri-Legal Expert Roger A. McEowen shares some random thoughts on land value and transitioning your farming or ranching business to a new generation.
October 13, 2023 11:31 AM
·
Today’s blog post by RFD-TV Agri-Legal Expert Roger McEowen takes a look at the “preferential payment rule,” a unique bankruptcy provision that can come as a suprise to farmers in financial distress.
October 13, 2023 10:54 AM
·
The meaning of a “double-fraction” clause and the impact on future oil and gas conveyances—that is the topic of today’s blog post by RFD-TV Agril-Legal expert Roger McEowen.
October 13, 2023 03:28 AM
·
In today’s blog post by RFD-TV agri-legal expert Roger A. McEowen tackles the task of building a solid hunting use agreement.
October 12, 2023 03:39 PM
·
Acquiring farm or ranch land, as well as the key concepts and issues are the topics of today’s blog post by RFD-TV Agri-legal Expert Roger McEowen.
October 12, 2023 03:01 PM
·
With 2023 projected to be a difficult year for agricultural producers, Chapter 12 filings may increase. One of the requirements to get a Chapter 12 reorganization plan approved is that be filed in “good faith.” In this blog post, RFD-TV Legal Contributor Roger A. McEowen explains exactly what farmers need to know about the process.
October 04, 2023 02:57 PM
·
The failure of a grain elevator can cause large problems for farmers and for the local community it serves. A farmer who knows their rights and where they stand if an elevator fails can be in a better position than those farmers who aren’t as well informed. That is the topic of today’s blog post by RFD-TV Legal Contributor Roger A. McEowen.
October 04, 2023 02:46 PM
·
