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Soil fertility studies for farmland buyers

Short answer: A DeepYield Soil Fertility Study measures nutrient levels at acquisition and gives the buyer and a tax professional a documented allocation to consider. The study is not a promise that a deduction will be allowed. Fertility already in the soil when land is bought is a separate, unsettled question from Section 180’s rule for fertilizer a farming business buys. Whether any tax treatment may apply depends on your facts. This is general information, not tax advice.

1. What a study measures

DeepYield measures nutrient levels at acquisition against a baseline for the agricultural use, drawn from university research, and values any excess using USDA data, so you and your tax professional have a documented allocation to consider. The study is not a promise that a deduction will be allowed.

Grid-sampled soil tests, run by an independent laboratory, with a Ph.D. agronomist review of the results.

Sampling is done before any lime or fertilizer is applied to the new ground, so the tests can reflect what was present at purchase, not what is applied afterward.

The product name is DeepYield Soil Fertility Study. As further method detail, not as a tax result and not as an IRS procedure: excess, as DeepYield uses the word, is the measured level minus the baseline, nutrient by nutrient. The Code does not define that measurement as a statutory term, and this page does not treat it as one. The method does not use hindcasting for a purchase in the same year as the study.

The study is documentation for you and your tax professional. It is not authorization for a deduction.

What to check:
– What your tax professional has been asked to consider, and what remains open.

2. How this relates to the tax law

Some farmland buyers, with a soil study and a purchase-price allocation, treat unexhausted fertilizer acquired with the land as a wasting asset that may be recoverable over time under §167. That treatment is unsettled and aggressive. No statute, regulation, revenue ruling, or court decision authorizes a current §180 deduction for residual fertility acquired with the land. The only IRS written determination on residual fertilizer bought with farmland, a 1991 technical advice memorandum, denied the taxpayer’s amortization claim: the taxpayer had to prove beneficial ownership, that fertilizer applied by the prior owner was present and measurable, and that it was being used up over a defined period, and did not. Whether any recovery is available, under which Code section, and over what period, depends on your facts and is a decision for you and a qualified tax professional. DeepYield does not promise a §180 election or any tax result. If you later sell the land, an amount attributable to fertilizer or lime included in the selling price may be taxed as ordinary income. A deduction that cannot be supported may be disallowed, with interest and penalties.

This page does not say that DeepYield’s method satisfies that memorandum, or that the method is authorized. Whether a baseline-excess valuation sits inside a prior-owner-fertilizer showing is a question for you and a qualified tax professional.

A soil fertility study may help a farmland buyer and a tax professional document nutrients on hand at purchase. Any tax treatment depends on your facts. DeepYield does not promise a deduction.

The useful window is before any lime or fertilizer is applied to the new ground. Book a short soil-study fit call at https://calendly.com/kyle_farmer/deepyield-soil-fertility-study-fit-call. The call is to see whether a soil fertility study may help you and your tax professional document nutrients on hand at purchase. It is not a promise of a Section 180 deduction or any tax result.

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

3. What the study does not decide

The study does not decide that a Section 180 election will be made. DeepYield does not promise that election, or any tax result.

It does not decide useful life, depreciation method, or how any allocation is reported, including on Form 3115, Form 8275 or Form 8594. Those questions are for you and a qualified tax professional.

It does not change the rule that land itself is not depreciable. Treas. Reg. §1.167(a)-2 says: “The allowance does not apply to inventories or stock in trade, or to land apart from the improvements or physical development added to it.” IRS Topic 704 says: “Land is never depreciable, although buildings and certain land improvements may be.” Publication 946 makes the same point: you cannot depreciate the cost of land, because land does not wear out, become obsolete, or get used up.

Hindcasting is not offered as a tax result. For a same-year purchase sampled near closing, it is not used.

Native or inherent nutrients in unfertilized pasture or rangeland are not presented here as deductible. Pasture and rangeland facts are for you and a qualified tax professional, not for this page.

A soil test may not measure nitrogen reliably. Without hindcasting, this page does not set out a method for valuing nitrogen.

What to check:
– Whether anyone has already treated the study as a promised deduction, a year-one write-off, or a decision about useful life. It is none of those.

4. Same-year purchases and sampling

For a purchase in the same year as the study, sample near closing, and before lime or fertilizer is applied, so the picture is of nutrients on hand at purchase. That is documentation. It is not a tax result.

A later test, or a purchase in an earlier year, raises questions for the owner and a tax professional. This page does not instruct anyone to amend a return or file Form 3115.

What to check:
– The sampling date relative to closing, and relative to any lime or fertilizer applied after the purchase.
– If the purchase was in an earlier year, what your tax professional has already considered.

5. After the report

The written report is for you and your tax professional. Later-sale and disallowance language is already in the residual paragraph above. This page does not invent a recapture section for Section 180.

What to bring

The purchase contract and closing statement, a legal description or acreage map, and the name of the tax professional who will review the study. If the look-back will also cover returns you already filed, bring those too. 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 a DeepYield Soil Fertility Study at a land purchase, that means walking through the study and the purchase documents with you and your CPA, who decides what, if anything, to do with them. 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 · Who Qualifies for Section 180, and How the Election Works · Farmland Purchase Price Allocation: How to Split Land From Improvements · Depreciating Farm Land Improvements: Fences, Wells, Drainage Tile, and Buildings · Buying a Ranch or Farmland: Tax Questions to Raise Before Closing · Inherited Farmland: Basis and Depreciation Questions, Answered · Missed Depreciation in Past Years: Amended Return or Accounting-Method Change?

The useful window is before any lime or fertilizer is applied to the new ground. Book a short soil-study fit call at https://calendly.com/kyle_farmer/deepyield-soil-fertility-study-fit-call. The call is to see whether a soil fertility study may help you and your tax professional document nutrients on hand at purchase. It is not a promise of a Section 180 deduction or any tax result.

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

Frequently asked questions

What does a DeepYield Soil Fertility Study do?

DeepYield measures nutrient levels at acquisition against a baseline for the agricultural use, drawn from university research, and values any excess using USDA data, so you and your tax professional have a documented allocation to consider. The study is not a promise that a deduction will be allowed.

Is residual fertility acquired with land deductible under Section 180?

Some farmland buyers, with a soil study and a purchase-price allocation, treat unexhausted fertilizer acquired with the land as a wasting asset that may be recoverable over time under §167. That treatment is unsettled and aggressive. No statute, regulation, revenue ruling, or court decision authorizes a current §180 deduction for residual fertility acquired with the land. The only IRS written determination on residual fertilizer bought with farmland, a 1991 technical advice memorandum, denied the taxpayer’s amortization claim: the taxpayer had to prove beneficial ownership, that fertilizer applied by the prior owner was present and measurable, and that it was being used up over a defined period, and did not. Whether any recovery is available, under which Code section, and over what period, depends on your facts and is a decision for you and a qualified tax professional. DeepYield does not promise a §180 election or any tax result. If you later sell the land, an amount attributable to fertilizer or lime included in the selling price may be taxed as ordinary income. A deduction that cannot be supported may be disallowed, with interest and penalties.

Does DeepYield promise a deduction, or a year-one write-off?

No. DeepYield does not promise a Section 180 election or any tax result. The written report is for you and your tax professional.

Is hindcasting part of the tax result?

No. Hindcasting is not a current expense, and this page does not treat it as one. DeepYield’s method does not use hindcasting for a purchase in the same year as the study.

Are native pasture nutrients deductible?

This page does not present native or inherent nutrients in unfertilized pasture or rangeland as deductible. Those facts are for you and a qualified tax professional.

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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