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DETERMINE IF SOIL/LAND COST SEGREGATION, SOIL NUTRIENT and SOIL & WATER CONSERVATION EXPENSING WOULD PROVIDE A SIGNIFICANT TAX BENEFIT

Many Farmers and Land Owners have never heard of these deductions.

IRC Section 180 $1,700/Acre National Average Savings from a Soil Nutrition Study.

IRC 168, 1245, 1250 and 168(k) 10% Average of Land Improvements Costs in Tax Savings from a Land Cost Segregation Study

IRC Section 175 Immediate Expensing of Incorrectly Capitalized Land Conservation Practice Improvements. 

3 Year Open Amendment Window 

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Most Owners Don’t Miss These Opportunities Because They Ignored Them, They Miss Them Because No One Ever Told Them About Them!

What is Soil/Land Cost Segregation?

What is a Cost Segregation Study & How Does it Work?

Soil/land cost segregation is a tax and accounting strategy used in farming that involves identifying and separating the costs associated with land improvements — specifically soil-related work — from the overall property. 

Cost segregation separates a property’s components into different asset classes with varying depreciation schedules

  • Soil-specific segregation focuses on identifying costs related to:
    • 🌱 Grading and earthwork
    • 🪨 Excavation
    • 🏞️ Land preparation
    • 💧 Drainage systems
    • 🛤️ Site utilities buried in soil
    • 🌿 Landscaping tied to soil

Soil/land cost segregation allows farmers to accelerate deductions, reduce taxable income, and improve cash flow — especially in years with high farm income.

IRC Section 175 allows farmers and ranchers to deduct certain soil and water conservation expenditures that would otherwise need to be capitalized under normal tax rules. This provision incentivizes land stewardship and environmental conservation practices.

The farmer soil nutrient deduction refers to tax deductions or allowances that farmers can claim for expenses related to maintaining or improving soil fertility and nutrient levels on agricultural land.

Farmers’ Soil Nutrient Deduction, IRC Section 175 (Soil & Water Conservation Expenses, combined with a proper cost segregation study can result in significant tax savings when done under professional guidance.

Ready to get started

Step 1 of 4

Is the Building Commercial, Agricultural, Farming or Ranching(Required)

Ideal candidates

Farmers, Ranchers, and Silviculturists (grow timber) who built, purchased, improved, or expanded land can generate tax savings via a Soil/Land Cost Segregation Study.

  • Farmland, Ranchland, and Timberland
  • Purchase or Inherited in the Early 2000s or Later
  • 100 Acres or More in one regional area (even if combined with other owners)
  • Actively used for Crops, Livestock, or Timber
  • Minimum Land Cost Basis of $500 per acre

Benefits

Accelerate Tax Depreciation Deductions

Create immediate tax savings by increasing depreciation deductions early in the asset’s life

Tax Savings

Lowering taxable income via depreciation, increases cash flow by reducing your tax liabilities.

Increased Cash Flow

Lower tax liabilities allows Farmers, Ranchers and Silviculturists to grow their business by reinvesting the savings into their business

Future Opportunities for Savings

As assets are removed from service later, cost segregation studies make it easy for future partial asset dispositions and write-offs

Five steps. Start to finish.

01

Submit Your Information

A short intake. Land size, acquisition date, current use. Takes minutes.

02

Sign the Agreement

An electronic agreement is issued for your signature. The audit begins once it is executed.

 

03

Sub-Surface Capital Basis Audit

Our Proprietary Engineering Partners conduct a comprehensive Sub-Surface Capital Basis Audit, gathering historical land-use records, yield history, and chemical application data.

04

Asset Calculation

Our Proprietary Engineering Partners calculate the sub-surface chemical asset value present in your land at the time of acquisition. Every figure is sourced from engineering data.

05

Tax-Ready Engineering Report

You and your CPA receive a fully documented, tax-ready engineering report. We hand it off. You take the deduction.

Frequently Asked Questions.

You’re right to be skeptical. If you haven’t heard of Soil Cost Segregation before, you should ask the hard questions. Here is exactly how it works, why it’s legal, and what to expect.

Yes. Soil Cost Segregation operates under standard IRS asset depreciation frameworks. Your CPA files it the same way they would file any other documented capital recovery deduction. There is no loophole. There is no gray area. The IRS recognizes sub-surface chemical assets as depreciable capital — what’s missing for most landowners is documentation, not eligibility.

IRS Section 180 — the “Expenditures by Farmers for Fertilizer, etc.” provision — was added by Public Law 86-779, enacted September 14, 1960, applying to taxable years beginning after December 31, 1959.

So it’s been part of the tax code for about 65-66 years. It allows farmers (and, under a common interpretation, land buyers) to deduct certain fertilizer/soil-fertility expenditures rather than capitalizing them, and it’s remained largely unchanged since its original enactment, aside from a minor 1976 technical amendment.

It’s a niche but long-standing provision — one reason it’s sometimes described as “overlooked” is that it’s been quietly sitting in the code for over six decades without much publicity.

In the context of IRS Section 180, what’s being tested is soil fertility levels on farmland — specifically, the residual nutrient content already present in the soil at the time a piece of farmland is purchased.

Here’s the idea:

  • When someone buys farmland, part of the purchase price reflects the value of nutrients already built up in the soil (from years of fertilizer application, manure, lime, etc.) — things like phosphorus, potassium, pH-balancing lime, micronutrients, and other soil amendments.
  • A soil test is performed (often compared with state agricultural extension guidelines, such as a university’s recommended optimum nutrient levels for that crop/region) to measure how many of these nutrients exceed the “optimum” level needed for typical crop production.
  • Anything measured above that optimum threshold is considered “excess residual fertility” — nutrients the new owner didn’t have to pay to add themselves, but which were included in the land price.
  • That excess amount can be calculated in dollar terms and deducted under Section 180, since it’s treated more like a depletable/consumable input than as part of the land’s permanent value.

The tests are typically conducted by an agronomist or a soil-testing company shortly after purchase (ideally in the same tax year), and the results are translated into a valuation using local fertilizer costs to determine the deduction amount.

Each state’s land-grant university sets a baseline; anything above that line is excess nutrients, with a deductible value.

Our reports follow strict standards:

  • Certified Crop Advisor affiliated with the American Society of Agriculture
  • Independent lab data verification
  • CPA ready report
  • Science and data backed with upfront math.

 

Here’s what separates a solid study from a weak one, based on how CPAs and soil-testing firms in this space describe it:

Sampling methodology

  • Fields should be divided into zones or grids based on soil type and management history — not just a handful of random grab samples.
    Multiple soil cores should be collected from each zone and composited for lab analysis, following recognized agronomic protocols for depth, timing, and spacing.
  • Independent, third-party sampling (rather than self-collected samples) adds credibility and reduces bias concerns.

 

Lab analysis

  • Testing should be done by an accredited laboratory, measuring the standard macro- and micro-nutrients (nitrogen, phosphorus, potassium, plus others like pH, organic matter, etc.).

 

Benchmarking against a real standard

  • The study needs to compare your results against an established “agronomic optimum” — typically figures published by a state land-grant university extension service for your crop and region — since the IRS requires proof that nutrients exist above agronomic optimum thresholds.
  • A study that doesn’t cite where its “optimum” benchmark comes from is a red flag.

 

Valuation

  • The excess nutrients need to be translated into a dollar figure using defensible, sourced fertilizer/lime costs (not arbitrary per-acre numbers).

 

Documentation and timing

  • Everything should be documented in a written report — sampling maps, lab results, methodology, and valuation — ideally generated before or shortly after the land purchase, since the deduction is typically filed in the same tax year.
  • Proper documentation isn’t just a formality — it’s necessary for compliance and can affect the deduction’s actual value if challenged.

 

The CPA sign-off
This is really the crux of it: a soil-testing company can produce the technical data, but they’re generally not positioned to bless the tax treatment. A credible provider will frame their role as delivering a CPA-ready valuation, not as tax advice — the actual “compliance” judgment on how the deduction is calculated and reported belongs to your CPA or tax preparer, ideally one with agricultural-specific experience.

 

Practical way to check a study/vendor:

  • Ask who does the sampling (independent party vs. self-reported)
  • Ask which university/extension benchmark they’re using for “optimum” levels
  • Ask to see a sample report — does it show methodology, not just a final deduction number?
  • Ask if they explicitly disclaim giving tax advice (a sign they understand their lane)
  • Have your CPA review the report before you file, not after

 

Since this affects how you report income to the IRS, I’d treat any vendor’s “compliant” claim as a starting point, not a guarantee — the real test is whether your CPA is comfortable standing behind the numbers on your return. I’m not a tax advisor, so for anything specific to your land or return, that conversation with a qualified CPA is the one that actually matters.

All samples are collected by independent, unbiased agronomists and analyzed through accredited third-party laboratories.

Every report is:

  • Signed by our Certified Crop Advisor affiliated with the American Society of Agronomy
  • Reviewed for CPA filing compatibility
  • Shown math is easy to tie to the Science

Average turnaround for soil test: 10–14 business days.

Timing matters for a few distinct reasons here — it’s not just one rule, but several timing-related requirements stacking on top of each other.

  1. It has to be newly acquired land
    The whole logic of the deduction is that you’re paying for nutrients that are already in the soil at the moment you buy the land — nutrients you didn’t put there and haven’t yet gotten a tax benefit for. Once you’ve owned the land for a while and have been fertilizing it yourself, that “excess residual fertility” argument gets much weaker, because:
  • You can no longer cleanly separate “what came with the purchase” from “what I added since”
  • Your own operating expenses (fertilizer purchases) were likely already deducted as regular farming expenses in the years you incurred them
  • There’s no clean baseline “at time of purchase” snapshot to point to

So, a soil test done years after purchase has much less evidentiary value than one done at the time of acquisition.

  1. Sampling needs to happen close to the purchase date
    The soil test is meant to capture a snapshot of fertility at the time of acquisition. If you wait a year or two, the numbers reflect whatever farming has happened since—new fertilizer applications, nutrient removal from crops, and management changes. That makes it much harder to argue the test represents what you bought, not what you’ve since done to the land.
  2. Tax filing deadlines
    The deduction is generally claimed on the return for the tax year in which the land was acquired. Elections and deductions tied to acquisition timing typically need to be made within the filing deadline for that year (including extensions) — miss the year, and you may lose the opportunity to claim it retroactively without amending, which adds complexity and audit exposure.
  3. Documentation credibility
    From an audit-defense standpoint, timing is essentially a matter of evidence quality. A soil study conducted before or immediately after closing, with dated lab reports and sampling records, tells a straightforward story: “This is what the land contained when we acquired it.” A recent study invites the IRS to ask, “How do you know this reflects the purchase date and not two years of your own farming activity?” — a harder question to answer convincingly.

Bottom line
Timing isn’t a bureaucratic technicality — it’s what makes the underlying factual claim (that you bought pre-existing soil fertility rather than built it yourself) believable and provable. The tighter the window between purchase and testing, the stronger the case.

As always, exact filing deadlines and elections depend on your specific tax year and circumstances, so that’s a detail to nail down with your CPA rather than rely on general timing rules.

Have you already fertilized after purchase without doing a soil test first?

That single decision determines whether the deduction exists.

The soil test must happen after closing and before fertilizer is applied.

Once fertilizer hits the field (without a soil test), the deduction opportunity is gone.

Every season, we see landowners miss five- or six-figure deductions simply because no one mentioned this before spring fertilizing.

Yes — for a given parcel, it’s essentially a one-time deduction tied to that specific acquisition, not a recurring annual write-off.

Why it’s one-time per purchase
The deduction is based on the excess residual fertility that existed at the moment you acquired that piece of land. Once you’ve claimed it:

  • You’ve captured the value of “pre-existing” nutrients for that acquisition event
  • Going forward, any fertilizer you apply is a normal, ongoing farming expense (deducted in the year incurred, like any other input cost) — not a Section 180 residual fertility claim
  • You can’t re-test the same land a few years later and claim “more” residual fertility from that same purchase — the nutrients you’re now measuring would reflect your own farming activity since acquisition, not something you paid for at purchase

But it’s not “one-time” in your farming career overall
If you buy additional land later — a new parcel, a new year, a new transaction — that’s a fresh acquisition event, and you can potentially do a new Section 180 study and claim a new deduction for that land. So:

  • One farm bought in 2020 → one Section 180 opportunity (tied to 2020)
  • Another farm bought in 2026 → a separate, independent Section 180 opportunity (tied to 2026)

Each acquisition stands on its own.

How it differs from other deductions you might be thinking of

  • It’s not like depreciation, which spreads a deduction over multiple years
  • It’s not a recurring input-cost deduction like your annual fertilizer purchases
  • It’s a one-time recognition, in the acquisition year, of value that was already embedded in the purchase price

One nuance
If a farm is inherited rather than purchased, the same logic generally applies at the point of inheritance (using stepped-up basis), so inheritance is its own “acquisition event” separate from any prior owner’s purchase.

If you’re weighing whether to pursue this for a specific piece of land you’ve owned for a while vs. a new purchase, that’s a good one to walk through with your CPA, since the strength of the claim really depends on how recently you acquired the property.

Some CPAs take the full deduction at once; others spread it out (e.g., 60 / 30 / 10 percent over three years).

This is one of the more disputed areas of Section 180 practice, and it’s worth understanding why before assuming either way.

The case for “yes, grazed land counts”

  • Section 180’s statutory language covers “land used in farming,” and that definition specifically includes land used for the sustenance of livestock.
  • Vendors that market Section 180 studies commonly claim grazing land is eligible, especially pastures that have been fertilized or improved for grazing.

The case for “no, it’s more complicated”

  • The IRS has never specifically addressed whether Section 180 applies to pasture or rangeland — the only relevant IRS guidance is an old 1991 technical advice memo and an audit guide, neither of which directly settles this question, according to University of Illinois tax researchers who looked into it after fielding numerous questions from tax professionals about marketing claims from agronomic firms.
  • Tax and legal commentary from Texas A&M’s agricultural law program notes that deductions tied to unfertilized pastureland are especially vulnerable to IRS challenge, and cautions that expansive claims based on general soil nutrients can invite scrutiny and penalties.

Where the line seems to fall in practice

  • Improved/fertilized pasture (land where someone documented actual fertilizer, lime, or other soil amendments being applied) has a stronger argument, since there’s a paper trail showing the “residual” nutrients came from real inputs.
  • Native rangeland or unfertilized pasture — land that’s never been actively fertilized, just grazed — is much shakier ground, since there’s no clear enrichment history to point to, and courts have not allowed similar depletion-style deductions for general soil nutrients.
  • Idle or unused land generally doesn’t qualify under anyone’s interpretation.

Bottom line
“Grazing land” isn’t a clean yes/no — it depends heavily on documented fertilization history, and it sits in a part of the code where even experienced tax professionals disagree. Given the IRS hasn’t weighed in directly and some practitioners flag this as higher-audit-risk territory, this is exactly the kind of case where you’d want your CPA to independently assess the strength of the claim — not just rely on a soil-testing vendor’s marketing language — before claiming it on grazing or pastureland.

The deduction amount is driven by a combination of soil science and cost data — essentially: how much excess nutrient is in the ground × what it would cost to replace it. Here’s the breakdown:

  1. Excess nutrient quantity
    This is the core driver. It’s calculated as:
  • Measured nutrient levels in the soil (from lab analysis — phosphorus, potassium, and other relevant nutrients)
  • Minus the agronomic “optimum” level for that crop/region (typically pulled from state university extension guidelines)
  • The amount above optimum is what’s treated as “excess” and potentially deductible

The bigger the gap between what’s actually in your soil and what’s considered baseline-necessary, the bigger the deduction.

  1. Acreage
    More acres with excess fertility = a larger total deduction, since the per-acre value gets multiplied across the property. This is why deduction estimates are often quoted per-acre (commonly cited ranges are roughly $750–$2,000+ per acre, though this varies significantly by property).
  2. Replacement cost of the nutrients
    Once you know the excess quantity, it gets converted to a dollar value using current market prices for the fertilizer/lime/inputs that would be needed to replace those nutrients. Fertilizer prices fluctuate, so:
  • Higher input costs at the time of the study → higher valuation
  • This pricing needs to be sourced and defensible, not just an arbitrary number
  1. Soil type and variability across the property
    Since sampling is done by zone/grid rather than as a single blanket average, fields with more variable soil types may show pockets of higher or lower fertility, which can affect the blended total.
  2. Land use history
    Land that was heavily and consistently fertilized by the previous owner (e.g., long-term cropland with a strong fertilization history) tends to show higher residual fertility than land with a thinner input history, which is part of why unfertilized pasture or rangeland tends to produce weaker, more contestable numbers (as we touched on with grazing land).
  3. Taxpayer’s overall tax situation
    This doesn’t change the deduction amount itself, but it affects the value of that deduction to you — it’s worth more if it’s offsetting income taxed at a higher marginal rate.

What it does NOT depend on

  • It’s not based on the purchase price of the land itself or an appraised market value—it’s specifically about the physical nutrient content and its replacement cost, separate from land value.

The bottom line: the number ultimately comes down to lab data (what’s actually in the dirt) converted into a defensible dollar figure — which is exactly why the quality of the soil study and its documentation, discussed earlier, matters so much. A sloppy or unsupported valuation is the most common point of vulnerability if the IRS ever asks questions.

 Think of the deduction as being tied to what’s already in the soil.

Higher nutrient levels = higher deductible value.

Phosphorus, potassium, calcium, magnesium, and other nutrients are what is used for the valuation.

Most haven’t seen it. The methodology is newer than most CPAs’ standard training, and compliance professionals are not typically incentivized to go looking for strategies their clients haven’t asked about. The tax-ready engineering report we deliver is designed so your CPA can file it without needing to understand the underlying engineering. We also make our asset documentation team available to walk through the report with your CPA directly.

A three-year lookback allows amended returns for prior years. If you haven’t claimed this deduction, returns you’ve already filed may still be in play. The eligibility review will tell you what years are available.

The documentation is engineering-grade. Every figure is sourced, every calculation is traceable, and the report is built to IRS standards from the ground up. In an audit scenario, you hand the report to your CPA. Every number has a source behind it. 

If you are audited for any reason and the soil cost segregation study comes into question, we will defend the audit related to the cost segregation study at no cost.

No, cost segregation is not going away.  Although certain tax incentives tied to cost segregation (such as 100% bonus depreciation) have changed due to legislation, the underlying practice of accelerating depreciation remains fully viable.  Tax professionals confirm that cost segregation continues to provide value by shifting asset lives into shorter recovery periods.

Yes, you can attempt to perform your own cost segregation study, but it is not recommended unless you have the expertise in engineering, tax law, and farm, ranch, agricultural, and timber cost estimation.  A proper soil cost segregation study involves a detailed analysis of land and land improvement components, IRS classification rules, and the accurate allocation of costs to shorter depreciation categories, such as 5, 7, or 15 years.

The IRS prefers engineering-based studies conducted by qualified professionals.  A poorly executed DIY study may lack proper documentation or fail to comply with IRS standards, which could lead to audit risks, penalties, or disallowed deductions.

That’s why most property owners choose to work with experienced providers.  Our team includes engineers and tax specialists who deliver IRS-compliant studies that maximize your tax benefits while minimizing risk.  We handle everything from property evaluation to final reporting, so you don’t have to navigate complex rules on your own.

If you want to unlock significant tax savings while staying compliant, it’s best to leave the study to professionals with a proven track record.

When you purchased your acreage, you didn’t just buy just dirt.  Beneath the surface was a chemical asset – a sub-surface inventory built up over decades, present in the ground at the moment you closed on the property.  The IRS recognizes that sub-surface asset as depreciable capital.

A Sub-Surface Capital Basis Audit (soil cost segregation) is similar in concept to a building cost segregation study, but instead of separating building components, it focuses on identifying and valuing subsurface assets associated with land. Some firms market it as a land-improvement or agricultural cost segregation study.

A Sub-Surface Capital Basis Audit for farming land is generally an engineering, geological, and tax-analysis review that identifies and documents the value of assets located below the surface of agricultural property that may have a separate tax basis from the land itself.

The term is not a standard IRS-defined audit, but it is commonly used by firms involved in tax recovery, cost segregation, natural resource valuation, conservation planning, and agricultural property basis studies.

A Sub-Surface Capital Basis Audit is similar in concept to a cost segregation study, but instead of separating building components, it focuses on identifying and valuing subsurface assets associated with land. Some firms market it as a land-improvement or agricultural cost segregation study.

What Is Being Audited?

The review typically looks for capital assets beneath the surface that may have measurable value, including:

  • Irrigation wells
  • Underground irrigation piping
  • Drainage systems and tile drains
  • Water rights
  • Aquifers and groundwater improvements
  • Mineral interests
  • Sand, gravel, or aggregate deposits
  • Subsurface utility systems
  • Specialized agricultural infrastructure

The goal is often to determine whether part of the property’s purchase price or historical cost can be allocated to depreciable or depletable assets rather than non-depreciable land.

For example:

Asset

Tax Treatment

Raw farmland

Not depreciable

Irrigation well

Depreciable

Underground irrigation system

Depreciable

Drainage tile system

Depreciable

Mineral deposit

May qualify for depletion deductions

Water rights (depending on facts)

May have a separate basis for treatment

 

 

What is the benefit of a Sub-Surface Capital Basis Audit or Soil Cost Segregation study?

A Sub-Surface Capital Basis Audit may help:

  • Increase depreciation deductions
  • Establish depletion deductions for natural resources
  • Support amended returns
  • Document basis allocations for a sale
  • Support estate and gift tax valuations
  • Identify previously unrecognized capital assets

Example

A farmer purchases 500 acres for $5 million.

Without an audit:

  • The entire amount is allocated to land.
  • No depreciation on the land value.

With a subsurface basis study:

  • $250,000 allocated to irrigation wells.
  • $400,000 allocated to underground irrigation systems.
  • $150,000 allocated to drainage infrastructure.

The $800,000 allocated to depreciable assets may generate significant depreciation deductions, while the remaining amount remains at land basis.

A Sub-Surface Capital Basis Audit may help:

  • Increase depreciation deductions
  • Establish depletion deductions for natural resources
  • Support amended returns
  • Document basis allocations for a sale
  • Support estate and gift tax valuations
  • Identify previously unrecognized capital assets

Example

A farmer purchases 500 acres for $5 million.

Without an audit:

  • The entire amount is allocated to land.
  • No depreciation on the land value.

With a subsurface basis study:

  • $250,000 allocated to irrigation wells.
  • $400,000 allocated to underground irrigation systems.
  • $150,000 allocated to drainage infrastructure.

The $800,000 allocated to depreciable assets may generate significant depreciation deductions, while the remaining amount remains at land basis.

When Farmers Typically Consider One

  • Purchase of a large farm or ranch
  • Acquisition of irrigated farmland
  • Farms with extensive drainage systems
  • Property containing mineral or aggregate deposits
  • Estate settlement involving agricultural property
  • Tax planning involving depreciation recovery

To apply cost segregation on your tax return, you must first complete a cost segregation study by a qualified provider.  The study identifies assets that can be reclassified for shorter depreciation schedules.

No, soil cost segregation cannot directly offset W-2 income.  The deductions from a soil cost segregation study apply to passive income from rental or investment properties, not to active income such as wages or salaries.  However, farmers, ranchers, and timber and agricultural growers who qualify under IRS rules may be able to use depreciation deductions from cost segregation to offset W-2 income.

We work on a contingency basis—you pay nothing upfront.  Our fee is a percentage of the credit we secure for you, so we only get paid when you get your money.  If we don’t get you a credit, you pay nothing.  This risk-free approach aligns our success with yours.

Legacy Tax & Resolution Services offers no-upfront-cost studies, where fees are based on project scope and potential tax savings.  In most cases, the tax benefits far exceed the study cost, often returning 10x or more in savings within the first few years.

Yes, soil cost segregation is often well worth it, especially for agricultural landowners looking to improve cash flow and reduce tax liability.  By accelerating depreciation on specific land improvements, landowners can significantly lower their taxable income in the early years of ownership.  This can result in tens or even hundreds of thousands of dollars in immediate tax savings, depending on the land’s size and value.

Soil Cost Segregation is particularly beneficial for land acquired or improved after 1987, especially with over 100 acres (individually or in a group).  In most cases, the tax benefits far exceed the study cost, often returning 10x or more in savings within the first few years.

Partnering with an experienced firm ensures the study is done accurately, in compliance with IRS guidelines, and tailored to your property type.  We have worked with thousands of property owners across industries, helping them realize long-term financial benefits.

A Soil Cost Segregation study typically takes approximately 3 to 6 weeks from the time we receive all the required documentation.

A Soil Cost Segregation study can typically accelerate depreciation on many land components, including:

  • Irrigation wells
  • Underground irrigation piping
  • Drainage systems and tile drains
  • Water rights
  • Aquifers and groundwater improvements
  • Mineral interests
  • Sand, gravel, or aggregate deposits
  • Subsurface utility systems

Your land likely qualifies if:

  • It’s farmland, ranchland, or timberland, or land improvements with a remaining depreciable basis
  • The minimum purchase price or improvement cost basis of $500 per acre
  • It is 100 or more acres (individually or in a group)
  • Actively used for crops, livestock, or timber
  • You anticipate holding the land for at least three years

Yes, you can, but if they knew how to do this, wouldn’t they have already done it for you?

Soil Cost Segregation requires a certified engineering team with extensive experience to be defined in an audit.  Do not take a chance on an IRS clawback that could result in substantial penalties and perhaps even a criminal investigation

Also, if they did miss this substantial deduction, what else are they missing?

We are a national tax recovery firm finding what many other tax professionals miss.

These deductions are only the beginning of our discovery process to determine what other opportunities you are not taking advantage of.

IRC Section 126 Conservation Practice Improvements are specific activities, enhancements, or modifications to land management that farmers, ranchers, and forest landowners implement to address natural resource concerns.  CPIs are discrete, measurable activities tied to specific conservation outcomes (soil health, water quality, air quality, wildlife habitat) and are grounded in established agronomic and environmental research.

Common Examples

Category

Examples

Soil Health

Cover cropping, reduced tillage, and mulching

Water Quality

Filter strips, grassed waterways, and irrigation efficiency

Wildlife Habitat

Pollinator habitat establishment, hedgerow planting

Air Quality

Prescribed burning, dust control

Livestock

Rotational grazing systems, manure management

Energy

Anaerobic digesters, energy-efficient irrigation

 

  
  
  
  
  
  
  

When USDA/NRCS pays a portion of the cost to implement a CPI, that cost-share payment may or may not be taxable income, depending on the situation.

Potentially Excludable from Income:
Under IRC Section 126, certain government cost-share payments for conservation practices can be excluded from gross income if:

  • The payment is for a practice that has “no significant effect on land productivity” (i.e., it’s primarily for environmental benefit, not income-producing improvement)
  • The IRS has approved the specific program for exclusion

 

Key point: Not all USDA programs automatically qualify. The exclusion is determined program-by-program and sometimes practice-by-practice.

For the farmer’s own out-of-pocket costs on CPIs:

  • IRC Section 175 allows farmers to deduct soil and water conservation expenditures in the YEAR PAID, rather than capitalizing them — up to 25% of gross farm income
  • Excess amounts can be carried forward to future years.
  • Qualifying expenses include things like terracing, grading, drainage, irrigation, and similar land improvements.

 

Unfortunately, many landowners and their tax preparers fail to understand this important point.  Fortunately, this can be identified and expensed immediately.

Depreciation Considerations

Some CPIs involve depreciable assets (fencing, irrigation equipment, storage structures), which would be:

  • Capitalized and depreciated over their useful life, or
  • Potentially eligible for Section 179 expensing or bonus depreciation

Sale of Land

If CPIs increase the basis of your land or improvements, that can affect capital gains calculations when the property is eventually sold.  Properly tracking which costs were expensed vs. capitalized matters here.

Key Things to Track

  • Whether cost-share payments came from an IRC §126-qualified program
  • What portion of costs did you pay out of pocket vs. receive as assistance
  • Whether the practice is a depreciable asset or a deductible conservation expense
  • Your gross farm income (affects the §175 deduction limit)

 

Bottom Line

Situation

Likely Tax Treatment

USDA cost-share payment (§126 program)

May be excludable from income

Your own CPI costs (soil/water conservation)

Likely deductible under §175

Equipment or structures from CPIs

Depreciate or §179 expense

Land value increases from CPIs

Affects the basis for future sales

 

A Soil Nutrition Study is an analysis of soil’s chemical, biological, and physical properties to determine its nutrient content and overall health, supporting plant growth.

What It Examines

Macronutrients — the primary elements plants need in large amounts:

  • Nitrogen (N) — drives leaf and stem growth
  • Phosphorus (P) — supports root development and flowering
  • Potassium (K) — regulates water use and disease resistance

Secondary nutrients — calcium, magnesium, and sulfur

Micronutrients — trace elements like iron, zinc, manganese, copper, and boron

Soil pH — acidity/alkalinity level, which controls how well nutrients are absorbed

Organic matter — decomposed material that feeds soil biology and improves structure

How It’s Conducted

  1. Soil samples are collected from multiple spots and depths across a site
  2. Samples are sent to a Agronomic lab (or tested with field kits)
  3. Results show nutrient levels, pH, and sometimes microbial activity
  4. A report is generated with recommendations for amendments (e.g., fertilizers, lime, compost).

Who Uses It

  • Farmers & growers — to optimize crop yields and reduce input costs
  • Gardeners — to diagnose poor plant performance
  • Environmental scientists — to assess land health or contamination
  • Land managers — for restoration or conservation planning
  • Researchers — studying soil ecology and climate interactions

Why It Matters

Without understanding what’s in the soil, adding fertilizers can be wasteful, costly, or even harmful — causing nutrient runoff into waterways.  A Agronomic soil nutrition study helps ensure the right nutrients are applied in the right amounts, supporting both productivity and environmental health.

Yes — there is a notable tax deduction available, and a soil nutrition study is actually the key to unlocking it.

Here’s how it works:

The Residual Soil Fertility Deduction (IRS Section 180)

Nutrient deductions have been part of federal tax policy since 1960 under IRC Section 180.  

Residual soil fertility — the nutrients already present in the ground at the time of purchase or inheritance — can represent real, documentable value.  Under IRS Section 180 and related tax codes, that value may be eligible for a deduction when it’s properly measured and supported.  

Who Qualifies

The deduction applies only to new purchasers of farmland, not to renters or existing landowners.  The land must be used for agricultural purposes, such as crops, pasture, or rangeland.  It is not a tax credit—it is a depreciation deduction spread over multiple years.  

How Much Is the Deduction Worth?

Typical deductions range from $1,000 to $2,000 per acre, with an average of $1,700 per acre based on a broader range possible depending on fertility levels, sampling recency, and nutrient pricing at the time of purchase.

The Role of the Soil Study

The land must be grid sampled to determine soil fertility levels, and you must establish that the residual fertilizer is being “exhausted” (i.e., used by the crop).  The excess fertility value can then be deducted and even amortized over time.

Phosphorus and potassium are the primary nutrients used to calculate the deduction, though all agriculturally necessary nutrients — including micronutrients such as boron, sulfur, and manganese — can also be included.

How to Spread the Deduction

The deduction can be used over three or four years.  A 60%/30%/10% schedule is sometimes used to deplete excess nutrients over three years.  

Important Steps

Farmers should maintain detailed records, including the purchase agreement, soil test results, and the methodology used to calculate the nutrient value.

YES – if part of the purchase used new cash or a loan.
NO – if 100 percent was funded through a 1031 exchange (no taxable income = no deduction).

Your CPA can confirm how your property was obtained.

If the property is entirely in a conservation easement it doesn’t qualify for a IRS Section 180.

Yes. A Soil Cost Segregation study only creates the depreciation reclassifications and supporting engineering/tax documentation. The deductions still need to be properly reported on the tax return, and many preparers are unfamiliar with the mechanics.

Typically, assistance can include:

  • Reviewing the completed cost segregation study.
  • Mapping the reclassified assets into the tax depreciation schedules.
  • Calculating any applicable bonus depreciation or Section 179 deductions.
  • Preparing depreciation schedules that can be imported into tax software.
  • Providing journal entries and asset listings for bookkeeping purposes.
  • Preparing amended returns if the study is performed after the original return was filed.
  • Coordinating directly with your CPA or tax preparer to explain how the study should be implemented.
  • Providing audit support documentation if the IRS later examines the return.

Common issues that arise when a preparer is unfamiliar with cost segregation include:

  • Not properly setting up the new asset classes.
  • Missing bonus depreciation opportunities.
  • Incorrect treatment of partial asset dispositions.
  • Failing to account for state depreciation differences.
  • Errors when implementing a “look-back” study on a property owned for several years.

If you already have a completed cost segregation study, I can also help you understand exactly what entries should appear on the tax return and what schedules your preparer should be updating. Tell me:

  1. The year the property was placed in service.
  2. Whether it is residential rental, commercial, or another property type.
  3. Whether the study is being done in the acquisition year or as a look-back study.
  4. Whether the return has already been filed.

With those details, I can explain the implementation process and any additional forms that may be required.

If needed, Legacy Tax & Resolution Services stands ready to help you implement these tax benefits.

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