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Who Qualifies for Section 180, and How the Election Works

Short answer: Section 180 has two threshold conditions: the taxpayer is engaged in the business of farming, and the land is used in farming before or at the same time as the expenditure. This page explains those conditions, and how the election is made and revoked, for fertilizer and lime the farming business buys. Whether those conditions are met depends on your facts, for example on a fixed-rental landlord’s participation in the operation. Section 180 may apply depending on your facts. That hedge is for those facts tests. It is not a way to blur the settled rule, and this page is not about fertility that came with purchased land.

A free two-year look-back is also available at go.deepyield.com/two-year-lookback.

1. The two conditions

A taxpayer engaged in the business of farming may elect under Internal Revenue Code §180 to deduct, in the year paid or incurred, amounts spent for fertilizer, lime, ground limestone, marl, or other materials that enrich, neutralize, or condition land used in farming, and the cost of applying them. The election applies only to that year, and generally cannot be revoked without IRS consent. It applies to the farmer’s own purchases of those materials for land already used in farming, not automatically to fertility that came with the land.

A person who farms for recreation or pleasure rather than for profit is not engaged in the business of farming. A cash-rent landlord is engaged in the business of farming only if they participate to a material extent in the operation or management of the farm.

The two conditions, in short:
– The taxpayer is engaged in the business of farming.
– The land is used in farming by the taxpayer or a tenant, before or simultaneously with the expenditure.

The election does not cover initial preparation of land the taxpayer or tenant has never farmed. Treas. Reg. §1.180-1(b) says: “Expenditures for the initial preparation of land never previously used for farming purposes by the taxpayer or his tenant (although chargeable to capital account) are not subject to the election.” Treas. Reg. §1.180-1(a) also says these rules are “not applicable to those expenses which are deductible under section 162 and the regulations thereunder or which are subject to the method described in section 175 and the regulations thereunder.”

What to check:
– Whether a deduction on a return was for the farming business’s own fertilizer, lime or similar materials, on land already used in farming.
– Whether the two conditions above are actually supported by the facts of that year.

2. Engaged in the business of farming

Treas. Reg. §1.180-1(b) applies the principles of Treas. Reg. §1.175-3 when deciding whether the taxpayer is engaged in the business of farming. That regulation says: “A taxpayer is engaged in the business of farming if he cultivates, operates, or manages a farm for gain or profit, either as owner or tenant.”

On rent: “a taxpayer who receives a rental (either in cash or in kind) which is based upon farm production is engaged in the business of farming.” And: “a taxpayer who receives a fixed rental (without reference to production) is engaged in the business of farming only if he participates to a material extent in the operation or management of the farm.” This page does not say that a landlord who receives a fixed cash rent can use Section 180 as a general rule. Whether the taxpayer participates to a material extent is a facts question for you and a qualified tax professional. DeepYield does not decide that question.

On timber: “A taxpayer engaged in forestry or the growing of timber is not thereby engaged in the business of farming.” On recreation or pleasure: “A person cultivating or operating a farm for recreation or pleasure rather than a profit is not engaged in the business of farming.” DeepYield does not decide profit motive for you. For how the IRS looks at a ranch that may be a hobby rather than a business, see Hobby or Business? How the IRS Looks at a Ranch.

On what a farm is: “the term farm is used in its ordinary, accepted sense and includes stock, dairy, poultry, fish, fruit, and truck farms, and also plantations, ranches, ranges, and orchards.” A member of a partnership engaged in the business of farming is also engaged in the business of farming, under the same regulation.

What to check:
– How the farm was actually operated, and whether it was operated for gain or profit.
– If you lease the land to someone else, whether the rent is based on production or is a fixed rental, and what your participation in the operation or management actually was.
– Whether forestry or timber, or a recreational use, was the activity being treated as farming.

3. Land used in farming

26 U.S.C. §180(b) says that, for this election, land used in farming means land used, before or simultaneously with the expenditures, by the taxpayer or the taxpayer’s tenant for the production of crops, fruits or other agricultural products, or for the sustenance of livestock.

The Section 180 regulations apply the principles of Treas. Reg. §1.175-4. That regulation says: “Land used for the sustenance of livestock includes land used for grazing such livestock.” It also includes a continuation-of-use rule, written for soil and water conservation expenditures: “If the expenditures are made by the taxpayer in respect of land newly acquired from one who immediately prior to the acquisition was using it in farming, the taxpayer will be considered to be using the land in farming at the time that such expenditures are made, if the use which is made by the taxpayer of the land from the time of its acquisition by him is substantially a continuation of its use in farming, whether for the same farming use as that of the taxpayer’s predecessor or for one of the other uses specified in paragraph (a)(1) of this section.” The examples that follow in that regulation state deduction results under section 175. This page does not retell those examples as Section 180 results. The principle this page uses is the one just quoted: a continuation of farming use after a purchase, including a change from one farming use to another, can still be a use in farming under those principles.

Initial preparation of land never previously used for farming purposes is out, as quoted in section 1 above.

What to check:
– Whether the land was used, by you or a tenant, for crops, fruits, other agricultural products, or the sustenance of livestock, including grazing, before or at the same time as the expenditure.
– If the land was newly purchased, whether the use from acquisition was substantially a continuation of a prior farming use.
– Whether a deduction was taken for initial preparation of land that had never been farmed.

4. How the election is made

Treas. Reg. §1.180-2(a) says: “The claiming of a deduction on the taxpayer’s return for an amount to which section 180 applies for amounts (otherwise chargeable to capital account) expended for fertilizer, lime, etc., shall constitute an election under section 180.” And: “Such election shall be effective only for the taxable year for which the deduction is claimed.”

26 U.S.C. §180(c) says: “The election under subsection (a) for any taxable year shall be made within the time prescribed by law (including extensions thereof) for filing the return for such taxable year.” The statute also says the election is made in the manner the Secretary prescribes by regulation, and: “Such election may not be revoked except with the consent of the Secretary.”

This is an explanation of how the settled election works. You and your tax professional decide whether to elect.

What to check:
– Whether a deduction under Section 180 was claimed on a timely filed return for that year, including a return filed under an extension.
– Whether the deduction was for that year only, and not treated as a standing election for later years without being claimed again.

5. How the election is revoked

The statute, quoted above, says the election may not be revoked except with the consent of the Secretary. Treas. Reg. §1.180-2(b) says: “Once the election is made for any taxable year such election may not be revoked without the consent of the district director for the district in which the taxpayer’s return is required to be filed.” The regulation refers to the district director for the district in which the taxpayer’s return is required to be filed. That office title is outdated; the consent rule is not. The regulation then says: “Such requests for consent shall be in writing and signed by the taxpayer or his authorized representative and shall set forth:”
– The name and address of the taxpayer.
– The taxable year to which the revocation of the election is to apply.
– The amount of expenditures paid or incurred during the taxable year, or portions thereof (where applicable), previously taken as a deduction on the return in respect of which the revocation of the election is to be applicable.
– The reasons for the request to revoke the election.

Those four items are the regulation’s list. This page describes the regulation. It does not walk you through submitting a request.

What to check:
– Whether a later change in treatment, in a year an election had been made, was handled as a revocation that requires IRS consent.

6. What this page does not cover

This page is about fertilizer, lime and similar materials the farming business buys, on land used in farming, and about how the election for those purchases is made and revoked. You and your tax professional decide whether to elect. DeepYield does not promise a Section 180 election.

What to bring

Your last two federal returns, including Schedule F if you filed one, invoices for fertilizer, lime and application, any lease if someone else farms the land, and any record of how the land was used in the year the materials were applied. The full list is in What to Bring to a Tax Return Review: A Checklist.

Where DeepYield fits

DeepYield is a second set of eyes, not a replacement for your CPA. For Section 180, that means checking whether the business-of-farming and land-used-in-farming conditions were documented in a year fertilizer or lime was deducted, and how the election was shown on the return. We share what we see with you and your CPA, who can review it line by line. Sometimes the review ends with nothing to change. Kyle Farmer is a lawyer with experience in tax, corporate law and immigration. DeepYield is not a law firm and does not provide legal services; working with DeepYield does not create an attorney-client relationship. A free two-year look-back is a secondary option: a review of your last two years of tax returns, done for you, then a 30-minute call to walk through what we found. How that review works: The Free Two-Year Look-Back: What We Review and What Happens Next.

Related: Section 180 and soil fertility: what the Code allows, and what is unsettled · Soil fertility studies for farmland buyers · Hobby or Business? How the IRS Looks at a Ranch · Livestock and Taxes: Inventory vs. Depreciable Breeding Stock · Buying a Ranch or Farmland: Tax Questions to Raise Before Closing · Farmland Purchase Price Allocation: How to Split Land From Improvements · Depreciating Farm Land Improvements: Fences, Wells, Drainage Tile, and Buildings

A free two-year look-back is also available at go.deepyield.com/two-year-lookback.

Frequently asked questions

Who qualifies for Section 180?

A taxpayer engaged in the business of farming may elect under Internal Revenue Code §180 to deduct, in the year paid or incurred, amounts spent for fertilizer, lime, ground limestone, marl, or other materials that enrich, neutralize, or condition land used in farming, and the cost of applying them. The election applies only to that year, and generally cannot be revoked without IRS consent. It applies to the farmer’s own purchases of those materials for land already used in farming, not automatically to fertility that came with the land. A person who farms for recreation or pleasure rather than for profit is not engaged in the business of farming. A cash-rent landlord is engaged in the business of farming only if they participate to a material extent in the operation or management of the farm. The two threshold conditions are that the taxpayer is engaged in the business of farming, and that the land is used in farming by the taxpayer or a tenant before or simultaneously with the expenditure.

Can a cash-rent landlord use Section 180?

A taxpayer who receives a fixed rental, without reference to production, is engaged in the business of farming only if the taxpayer participates to a material extent in the operation or management of the farm, under Treas. Reg. §1.175-3, which the Section 180 regulations apply. This page does not say that a cash-rent landlord can use Section 180 as a general rule. Whether that test is met depends on your facts, and is a question for you and a qualified tax professional.

Does growing timber, by itself, qualify?

No. Treas. Reg. §1.175-3, applied by the Section 180 regulations, says a taxpayer engaged in forestry or the growing of timber is not thereby engaged in the business of farming.

How is the election made?

Claiming a deduction on the taxpayer’s return for an amount to which Section 180 applies constitutes the election. It is effective only for that taxable year, and it is made within the time prescribed by law, including extensions, for filing the return for that year. You and your tax professional decide whether to elect.

Can the election be revoked?

Only with IRS consent. The statute says the election may not be revoked except with the consent of the Secretary. The regulation says a request is in writing, signed by the taxpayer or an authorized representative, and sets out the taxpayer’s name and address, the taxable year, the amount previously deducted, and the reasons. This page describes the regulation. It does not walk you through submitting a request.

Does this page tell me to elect Section 180?

No. This page explains the settled rule for fertilizer and lime a farming business buys, and how that election is made and revoked. You and your tax professional decide whether to elect. DeepYield does not promise a Section 180 election.

Written by DeepYield.

Sources

Results depend on your specific facts. No outcome is guaranteed. This is general information, not tax advice; advice is provided only under a signed engagement.

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