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Could you use a Section 180 tax deduction on your next farm acquisition to make your financial life better? That's what we're digging into, and the role that soil analytics have
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with it, in this special episode of XtremeAg's Cutting the Curve. Welcome to XtremeAg's Cutting the Curve podcast, where real
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farmers share real insights and real results to help you improve your farming operation. And now, here's your host,
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Damian Mason. Hey there. Welcome to another fantastic episode of XtremeAg's Cutting the Curve. I got a good one for you today. It's a little bit obscure, but it could make you a
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lot of money. I covered this on my own show, "The Business of Agriculture," a couple of years ago. We're talking about a tax policy.
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The tax code of the United States of America is exceedingly complex. It's an actual business, let's face it, all the CPAs that make their money off of
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this. It's reams and reams of paper. If you printed it off, it'd be like a foot thick, the tax code. So there's one that's pertinent to the United States agricultural system,
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especially if you are buying, inheriting, in any way acquiring farm grounds. The Section 180 tax deduction, and it
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allows you to get credit, I think is the term I'm going to use here, for fertility that is in the soil.
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I'm going to turn this over to my guests who know a little bit more about this than I do. Austin Cook is a Nebraska farmer.
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He's with a company called Earth Optics. Also with Earth Optics is Gunnar Budvargson. That's Icelandic, by the way.
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He is a guy with Earth Optics. He has a big title, but it doesn't matter. He's just here to help you. So the point is, Earth Optics is a company that we work with here at XtremeAg.
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They do advanced soil analytics. And one of the reasons that you want this, we're talking beyond the old 1950s stuff of just going out and seeing how much
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nitrogen's in your soil, phosphorus, potassium. We're talking about all the measurements you can do, and Earth Optics is great with all that. But we're not here to talk about soil
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analytics per se. We're here to talk about using soil analytics on land that you buy, inherit, somehow acquire, and then getting
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this tax provision put in place, which makes it more affordable. Gunnar, you want to give me the long and the short of it?
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Because Austin actually did this on his Nebraska land acquisition recently. We'll get into his real-life example.
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I would love to. Yeah. And thanks again for having us on here today. We're super excited about this. So yeah, the Section 180
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tax deductions or residual fertility tax deductions, they go by a few different names.
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Like you mentioned, it is employing the Section 180 tax deduction itself, or the code Section 180.
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Really, it's a mechanism for farmers, and you can really broaden it to landowners as well. Anybody who is purchasing or inheriting cropland,
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pastureland, timberland, any sort of working land or producing land where you're producing an agricultural good.
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Basically, when you acquire that piece of land, so either purchase or inherit it,
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any residual fertility that's in that land is tax-deductible. So, the theory is, or the justification is that when you purchase that land,
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there's some level of fertility in that soil that may or may not be above a county level baseline or average.
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Anything above that, anything residual, therefore is tax-deductible at the equitable value of the fertilizer for those different macros and micros at the year of acquisition.
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So I buy this farm ground. Okay, let's just go round numbers here. I buy it for $10,000 an acre, and it's got this excessive
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fertility, to use your point here, above the county average or what have you, and I find this out because of the soil analytics done by
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Earth Optics. Now what? How does this make me money? I just bought this farm. Now what? Yeah, so we've gone through and we've done the actual soil sampling, and we've run
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the lab analysis. So that's helped us determine the actual total fertility value in the soil, and by value there, I mean the fertility levels.
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There we worked with our partner to- Do you assign a dollar value to that? Not quite. So first, we have to identify what is actually the county average or
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county level baseline that we'll put that up against. And then we'll figure out what is the residual fertility value. And that's when we basically figure out what is the dollar value of
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each of those different macros and micros that we've identified in the soil that is residual on a per acre basis.
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Okay. So going back to my example, and Austin, you can hop in here any time because you've done it. I've got this land, I just bought it for $10,000 an acre, and then
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we find out there's $1,000. Does that sound like a reasonable number? Is there $1,000 in there?
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Yeah. Yeah. So we did it on not only my farm, but my dad's acres this last fall, and it definitely varies on how much
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nutrients are out in that soil. So some of our ground in Cedar County that is a little bit more sandy, doesn't hold on nutrients as well as some of the stuff
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in Dixon County. There was different values according to those two pieces. So the nice thing is between the average
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of all of ours, I think on our farm, it was 1,750 bucks an acre was the average. Our stuff in Dixon County was probably $2,000 an acre,
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where some of that Cedar County ground was around 1,500 bucks an acre. So it was really nice to see that ability
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to use that deduction, take that away from our overall tax bill, reduce that taxable income for our
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farm. Okay. So how much did it amount to? So 1,750 bucks an acre was the average for our farm.
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Better ground was higher. Poorer ground was a little bit lower. So it really goes off of what your total soil
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excess nutrients are. So if you have a ground that's got, let's say you have a hog farm in Northwest Iowa,
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those levels are going to be a lot higher than somewhere where there's a little bit less nutrient.
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Okay. So using this example, how do I use that? So I take that $1,750 that Earth Optics figured out was the amount, and now how do I use it?
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So that can be used from your total taxable income. It can reduce that total income. So it's basically a tax deduction- Okay
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... off your total income, and there's a few different ways- Okay, then. Let's just go back to that.
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So I've got 1,750 an acres, and let's just for round numbers say that that was on a 100-acre chunk of ground. So there's $175,000, right?
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Correct. Okay, and then I madeI don't know, $300,000, I just take $175,000 off of my 300 right there for the tax year?
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Yeah. So that's one way. Another way is where you can amortize it out over let's say three years. Your CPA will know best.
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So basically- Yeah. Obviously, if I don't need $175,000- Yeah
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... of deduction right now because I didn't make that much this year, I can utilize it over multiple years. Correct.
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Okay. So the point is, you have to have the data and the soil fertility data to do this, and that's where Earth Optics comes in,
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yes? Correct. Yep. Gunnar's nodding his head. Someone should have told him this is a visual show as well as an audio show. So the people that are watching see him nodding his head.
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The people that are driving their truck down the road, okay, is that dude nodding his head? Oh, we'll just assume he is. Anyway.
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Answering in an audible tone. Gunnar, question for you. Does this get debated? All of a sudden, the guy that buys this says, "Hey, that's neat," but the guy down
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the road that's envious says, "That guy's going to take $1,750 of deduction and fertility on that. That ground's not worth that. There's not much fertility there. I used to farm it." Does it get debated?
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Does it get audited? There's always a chance that an audit may happen. Most importantly, you want to work with the right partner, and you want to be
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using data that is defensible. And so that's why we feel strongly that working with Earth Optics on this is the right choice.
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We're pulling soil data at the proper grid level. We're doing the lab analysis. We have an NAPT-certified lab. So as long as the underlying data that backs up that claim is defensible and you're
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using kind of standard metrics or calculations to get to the actual per acre tax deduction, then if there is ever an audit in
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the future, you shouldn't have any issues. So the next part of this is what about when that fertility then becomes degraded?
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Austin, when you say, okay, I went out and didn't apply any fertility to this field now for three years, do I have to give this back because I used it?
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In other words, is there something that's going to come back just like 1031 exchanges? If I use that, I defer taxes, but I don't avoid them
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entirely because eventually I'm going to... Is there something like that on this? Do I end up having to pay the tax man?
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So you can only use this deduction one time in the life of that ground while you own it. So it's not a deferment, it's
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a straight tax deduction. So it's no different than writing off a new fence within your property or if you were to add tile line over irrigation.
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It's a straight tax deduction, so it's not really deferring like a 1031.
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Okay. So the point is, I can use this, and once I use it, that's fine. I can't use it again personally on this.
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Now, the person that buys it off of me could do it. Correct. One thing you do want to be careful about if you claim this tax deduction, right,
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maybe not be careful about, but be aware of, is if you claim a deduction on a piece of land in this year, you've got five years where if you sell that land, there is 100% recapture on that tax deduction.
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And that would be considered income in the IRS's eyes. And for the following five years, that decreases- Wait. Let's go through that again.
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So the one consideration is if I use this deduction, fertility deduction, to basically deduct what I owe on my taxes for my income taxes... Go ahead.
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Then you will not want to sell that piece of land for a minimum of five years, but really I would recommend 10. The reason for that is over the course of those
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first five years, it's 100% recapture of that tax deduction. For the next five years, it whittles down 20% year over year.
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So for instance, nine years after you've claimed this tax deduction, there would still be a 20% recapture on it, which is worth considering.
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And so after 10 years, you've got really nothing to worry about. Everything is it's all said and done and set in stone at that point.
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But that is one key consideration that anybody looking at this service should really take into account is, hey, do I plan on selling this piece of land at
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any point within the next five to 10 years? Okay. That's a big one right there. Okay. I got a couple more questions about this, about the practicality of it, and then
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making sure that I have the timing right. Before I do that, you know what? These folks aren't just going to help you with tax deductions and making money off
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your next farm acquisition. They're also here to help you with the farm you have right before your hands. If you can imagine knowing the soil as well as
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you know your field, with Earth Optics, that's the company these two guys work for, you get the most precise soil insights in the industry.
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Clear, accurate data on fertility, that's what we're talking about right now, biology, and compaction. No more guessing, just the information you need to make
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smarter decisions to optimize your input costs and boost your yields. Earth Optics puts the full picture of your soil right in your hands so you can farm confidently and profitably.
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You can unlock healthier soils, stronger harvests, and a better bottom line. If you want to learn more, go to earthoptics.com.
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Earth like the planet you live on, optics like your eyeballs. Earthoptics.com. Okay.
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So what do I need to know? If I'm getting ready to buy this piece of land, I should call up your company and get a full soil analytics done on it. Is that the first step?
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Correct. That's oftentimes the first step. There's a few things that you need to have ready to go for this, and it's really just some information about the land itself.
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For instance, the year of acquisition, so the year you bought it or inherited it, the cost basis per acre,
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and little things like the address of the property itself. Those are more administrative and are for the actual just putting the report
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together. Those are things that we need to know. And cost basis, for instance, is a big determinant of the actual tax deduction itself. And so a piece of land where the fair market value was
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$500 an acre compared to one where it was 5 or $10,000 per acre are going to have wildly different costs or tax deductions
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themselves. Beyond that is the fertility data itself. And a really important differentiator that I think Earth Optics has-... is, like you just mentioned, we're a data
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analytics company, and we're doing fertility testing for folks across the Midwest, across the country every single season.
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We can use that data for this tax deduction. We don't necessarily need to go out and collect new soil to actually help you perform this or claim this tax deduction.
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So that's why this is a service we wanted to offer to all of our end customers, is we're already probably collecting your fertility data and analyzing it.
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Let's make sure that we're really maximizing the value out of it and doing everything that we can to improve the bottom line.
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You said you don't need to pull new samples. If I'm already in business with you, but... Or
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say I didn't use Earth Optics, but I have soil sampling done on this piece of property.
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I can use that and just give it to you? We could use that as well. Yep. And then you'd get a discount on the total cost per acre as well.
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I see. Because obviously, you're on charge for all that. Then you prepare this report and then say, "Here's what we estimate this at being."
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Correct. Austin, do you have an average? The company, yours was $1,750 for you and your father. Is that normal or is that high or low?
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I would say that's kind of on average. I know a lot of people are talking about 1,700 bucks an acre. So we were slightly above that average.
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But you also have to look, there's going to be a vast difference between rangeland- Yeah
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... versus really productive crop ground. And there's going to be a benefit for both. Last piece of farm ground I bought was in the year 2018.
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Is it too late for me to go back and get it out of that? No, that's a perfect time. So I would say anything
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within the last 15 years typically qualifies. But it also goes off of what that fertilizer price was for that specific year. So, with our property, we
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had a different fertility value per pound on the different nutrients. So some years were really good, and some years were not as good.
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So do I have to have samples from 2018? Not necessarily. We would have to know what applications you have made
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since 2018, and it's just a different code. I see. So my property that I bought, and one of the properties I bought in 2018, I still could go back and do this.
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So tell me the process. I get together with one of you, and then we do what?
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So it's similar to the process that Gunnar had talked about. So we would need the purchase price, the purchase acquisition date,
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and then- Purchase price, acquisition date. Go ahead. And then also your field boundaries and then any applications that were made between now and the purchase date. So we would need all of that.
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And then there's just some formulas that they would run to come up with what the values would look like.
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You said field perimeters, et cetera. Okay, now here's another one for you. I rent my ground to a guy that does dairy, so he's put on
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lots of amounts of manure on that field since then. Does that preclude me from anything? It doesn't preclude you from anything, no.
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No, it doesn't exclude you. Same as your applications, we would just probably need to know how much tons of manure has been applied every year.
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Okay. Per deal. So you said it needs to have happened within the last what, what do you think on acquisition, 15, 10?
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You can go as far back as the '70s or '80s in certain cases. Oftentimes, it doesn't exactly pencil out just based off of the cost basis, and we
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might not have records for everything that we need to do the full application. But yeah, anything like Austin said, going back 15, 20 years or so
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is almost a sure deal. Okay. So that is important information. So the purchase price, does that matter?
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Because it's about the dollar of fertility. With the purchase price, why would that matter? The cost basis per acre comes into play as well.
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I forget exactly what effect it has on some of the calculations behind the scenes. But it is an important determinant of the actual tax
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deduction. So I take this to you, or I give you this information, you give me this number, then I take it to my CPA. Is that how this works?
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Correct. Yep. It's a turnkey report that you want to sit down and review with your CPA. It's important to remind everybody, we are not
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tax advisories or tax professionals ourselves. But this is essentially a turnkey report that's ready to file alongside with your CPA.
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All right. And so you said it could even go back as long as 20 years. Correct.
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And then once I do it, the main thing is I want to hold onto that piece of property for probably another decade after I do this.
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That is correct. So as long as I hold everything for a decade, I can get my tax deductibility out of this.
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Yep. Is there a cap? There's no cap. Not that I'm aware of, at least. Austin, anything like that?
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Yeah. I would say when you're talking about the acquisition price and what you're going to get, I think there is something along 50%.
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So if you bought a piece of ground for 1,000, you're not going to get a $1,500 an acre deduction. That would throw up a red flag.
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So I think there is... I'm not sure on the percentage base. But I think there is kind of a cap there where they say, "Hey,
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you bought this ground for $1,000. You're not going to get 1,500 bucks back." Okay. There's some complexities here.
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I'm just thinking through my own scenario. Sometimes you buy a farm, and it's just on a lump sum like I did, and you didn't portion it out to it was this many dollars on the cropland acres,
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this many on the home and barn, and this many acres on the wooded stuff. So do you just try and do a mixed average on that?
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So for my own property, I have that kind of same thing where I bought a quarter of ground. There's a mix between pasture, the acreage itself, and
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then the row crop. I just did the average of the 160 divided by the purchase price, and that was my cost per acre. That's what I did for my own farm.
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If you have it broken out, that'd be great as well. Okay. So the point is, since it's a deduction for the fertility,
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the price per acre, if there's-It doesn't have to be, because like I said, on something like yours, you can say, well, was that how much over here versus how much over on the front yard versus all that?
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Yeah. Got it. All right. What other things do you know that I've not asked you about this? Because this seems like a real good opportunity for everybody, and
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you can go back 10 to 20 years to do this. So it seems like all they need to do is get ahold of you guys and start getting stuff signed up, or if you're going to buy something, to get in front of it.
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Mm-hmm. That's correct. It's as simple as that. Reach out to us. We've got some literature on our webpage in a way that you can submit an
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inquiry with us. This is a fantastic service that we're super excited about. Once again, it's just about improving the bottom line for folks, and
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oftentimes we've already got the data. It's something that we can put to use and provide more value with. So roughly, what am I paying you guys to get this
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report? It's typically, the full kit and caboodle is typically around $40 an acre. I see.
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All right, so it sounds like this can really make sense and make us some money here on what we're talking about on the deductibility.
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Is there any timeframe on this? We talk about going back, but is this thing going to go away? Is there a sun setting on this?
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There's no sun setting for this. It's here. It's here to stay, at least from our perspective. Obviously, there's a bunch of other groups that do this similar service, too.
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It's been around for quite some time. It just wasn't something that people had really been able to take action upon for the past 5 or 10 years or so. So it certainly is kind
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of the buzz right now, but it's just because finally it's a service that people can really take advantage of.
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Mm-hmm. Got it. So the main thing is you get the report, then I hand it off to my accountant, and my accountant and I go through whatever we need to, and then we
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submit it, and that's it. And then you haven't heard any problems with this from farmer clients that you do this with, "Oh, boy, we didn't have this
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right." IRS questioned something. Has there already been any sort of hiccups that you've heard about? Not to date.
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Haven't heard of any to date, thankfully. Got it. All right, Austin, thanks for being on here. What else do I need to know? Last thing out the door.
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Yeah, I would say one of the things that really set this apart from some of the other companies that are out there is when we do our legacy
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nutrient deduction, we're using our true nutrient maps. So the deduction itself is a huge ROI tool, both Earth Optics and the True Nutrient platform.
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We can give you high resolution, highly actionable soil maps where you can utilize your VRT application. So I think that is one cool thing about utilizing our maps to
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utilize this deduction is it can be used in multiple ways other than just your deduction. Right.
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You mean I can use it in other ways besides the deduction? For what purpose? So the deduction's great, but on the other flip side, we can actually
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use these maps to make highly actionable fertility VRT scripts. Oh, for moving forward and actually getting my fertility back.
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For moving forward. Right. Yeah. Right. Okay. And then if I want to do this and I want to do it with you, what do I do?
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Go to our website. Damian, if you're fine with it, I can just drop my phone number right now and people can start texting.
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You can drop your phone number. I'm fine with it. By the way, I already told everybody your website because I did it in my read right here. When I told them Earth, like the country, the planet you live on, Earth
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Optics. Oh. Like eyeballs. earthoptics.com- Yeah ... is the website. Go ahead and give me your phone number. Yeah. So my phone number is
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320-250-4394. Anybody feel free to text or call if you have any questions. I will say the best place to go to is probably the website, just because we've got
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some literature there. We've got a simple form that folks can fill out that gets some of the information right out the gate, reduces some of the back and forth.
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But any questions that folks have, please reach out to me. We talk about going back in time and grabbing those, like if I'm going to do this
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for this farm that I bought in 2018, then is there a factor on the money? The fact that I should have gotten this deduction years ago, do I then go to the
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government and say, "You owe me interest"? No, I don't think that plays into this unless that was part of your experience, Austin.
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No. The one thing is, so my ground was bought in 2021. Some of those key nutrients like nitrogen or phosphorus, if it's not claimed in that first year of acquisition,
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having that excess fertility is probably not going to be a thing. So that is kind of the importance of
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doing this deduction on the year of purchase, is so you can get all of your nutrients for that excess fertility.
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Right. But if I go back to my one from eight years ago, you're saying I still can get something out of that.
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Correct. Still worth doing. Still worth doing. I think anything 20 years ago would probably be worth doing. Got it.
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Mm-hmm. By the way, if you're interested in what you heard here today, Earth Optics every year drops a thing called the Predictive Ag Report.
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Gunnar, tell me what that is, and then Austin, tell me where I can find it. Thanks so much, Damian. Yeah, so it's our 2026 Predictive Ag Report.
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We do this every year. It's really a year-end summary of all of the results that we collected. So the soil biology sampling that we do, the high-resolution
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nutrient mapping. Putting together regional Midwest-wide heat maps of these different pest, pathogen, and disease panels,
00:23:32
helping folks understand where are certain things popping up. We've got some really interesting case studies.
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We describe a little bit the other services that we do. So it's a really comprehensive detail of everything that it is that we do and everything that we're proud about that we
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measured last year. Got it. And the main thing here, Austin, is no matter where you are, definitely if you're in the traditional Corn Belt, you can say, "Why am I
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not treating for this when the Predictive Ag Report says that in my area, there's an 87% chance that I'm losing yield to whatever
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this pathogen might be," right? Correct. So if I have that 87% risk, I definitely want to understand what's in my field, because that could be robbing us of a lot
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of yield. So the one thing, the first thing you can do is look at the Predictive Ag Report. Download that off of our website
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on earthoptics.com. Got it. He's Austin, he's Gunnar. I'm Damian Mason. Thank you for being here. Learn more at their site. Also, talk to your CPA.
00:24:28
If you're a farm operator, you don't have a CPA, you really need to, because listen, like I say all the time, this is a business.
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If you want to learn more about this, go to their website. Again, you can also check out the show that I did a couple of years ago on my
00:24:42
air on the Business of Agriculture show. And like I said, do talk to your tax advisor. Go and check out all the videos that we have created, all of these episodes of
00:24:52
Cutting the Curve at XtremeAg.farm. Also, we've got a YouTube channel. It's very simple. Just go on YouTube, type in Xtreme Ag, and we would
00:24:59
love to see you at one of our future events. Till next time, thanks for being here. I'm Damian Mason with Xtreme Ag. That's a wrap for this episode of Cutting the Curve.
00:25:08
Make sure to check out XtremeAg.farm for more great content to help 00:25:12.644 --> 00:25:15.664
