DETERMINE IF SOIL/LAND COST SEGREGATION, SOIL NUTRIENT and SOIL & WATER CONSERVATION EXPENSING WOULD PROVIDE A SIGNIFICANT TAX BENEFIT
Most Farmers and Land Owners have never heard of these deductions.
The National Average Savings per acre is $1,700
3 Years Open Amendment Window
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
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.
Is this actually legal?
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.
My CPA has never mentioned this.
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.
What if I already filed this year?
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.
Will this flag my return for an audit?
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.
Is Soil Cost Segregation going away?
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.
Can I do my own cost segregation study?
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.
What is a Soil Cost Segregation study?
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.
What specifically is a Sub-Surface Capital Basis Audit?.
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
Why is a Sub-Surface Capital Basis Audit or Soil Cost Segregation study performed?
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.
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.
When should a Sub-Surface Capital Basis Audit (Soil Cost Segregation study be done?
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
How can we apply cost segregation to a return?
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.
Can soil cost segregation offset W-2 income?
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.
How much does Soil Cost Segregation cost?
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.
How much does Soil Cost Segregation cost?
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.
Is soil cost segregation worth it?
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.
How long does a Soil Cost Segregation study take?
A Soil Cost Segregation study typically takes approximately 3 to 6 weeks from the time we receive all the required documentation.
What component can typically be accelerated through a Soil Cost Segregation study?
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
How do I know if my land qualifies for a Soil Cost Segregation study?
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
Can't I have my tax preparer do this for me?
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.
What if my tax preparer just does not know how to implement these deductions, can Legacy help?
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:
- The year the property was placed in service.
- Whether it is residential rental, commercial, or another property type.
- Whether the study is being done in the acquisition year or as a look-back study.
- 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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