Write off of soil fertility costs: Expenditures by farmers for fertilizer
By Brian Ravencraft
Farmers are always looking for deductions they can take to minimize their current year tax impact. As most farmers understand, the purchase of farmland is nondeductible, and thus finding deductions at the time of purchase can be beneficial to cash flow the purchase.
While buying land does not provide a tax write off, the underlying residual nutrients can provide costs that can be deducted. IRS Code Section 180, Expenditures by farmers for fertilizer, etc., does provide landowners with such potential deductions.
When farmland is purchased, the tax code allows the purchaser to deduct the value of the excess fertility in the field. Just like other improvements, such as fences or drainage tiles, excess fertility is considered to be a depreciable/amortizable asset and can be taken as a tax deduction.
To qualify for this unique tax benefit the following criteria must be met.
- The land purchaser must establish Beneficial Ownership
This means the purchaser cannot have farmed the acquired land during the prior crop season, and if the land is inherited, the heir cannot have farmed the land during the prior crop season.… Continue reading