—Albert Einstein, physicist

FertileDirt™ Cost Segregation

The tax deduction issues from cost segregating fertilizer has not evolved into guidance as definitive as commercial property buildings; however, of course it should be a tax deduction given appropriate facts and circumstances. Nowhere can we find does it say taxpayers acquiring a beneficial ownership interest in farmland cannot claim it. Generally, rulings and opinion imply it must be supported by good science appropriately applied to a taxpayer’s particular ownership and income tax situation.

For over a decade we initially used spreadsheets to crunch the data working with soil tests, crop and nutrient data, and varying fertilizer price component data, among other pieces of vital information. That proved to be a difficult way to go about it. Similar to the inherent inefficiency, problems, and frustrations associated with using/reusing spreadsheets easily prone to error each time database inputs like engineering statistics change when running building cost-segregation studies, we were forced to find a better way.

After the HCA case, many engineers also became tax consultants and built a cottage industry doing cost-segregation studies on buildings; they were forced to develop tailor-made proprietary software to efficiently perform those tasks. Beginning in 2008, we began developing a system like the engineered systems used nowadays by cost segregation firms in the commercial building property realm.

Currently our team consists of:

• A CPA with a BS in Business Administration, Concentration in Accounting (1977)
• A Farmer and farmland owner with a BS in Agronomy (1983)
• An Engineer/software designer and 2nd generation CPA with a Master of Science in Accounting (2012)
• A 7th generation Farmer and beneficial owner/steward of farmland with a Master of Soil Science (2015)

After more than a year of development, our FertileDirt™ cost segregation software program began running case studies in early 2010. Such experience after crunching data on tens of thousands of acres of farmland tracts has shown:

• If you've purchased or inherited farmland, you should be entitled to benefit from tax depreciation deductions ranging from 10% to 33% of its purchased cost or inherited cost basis within 1 to 15 years of ownership depending on expected crop rotations to determine nutrient exhaustion.
• Our cost-segregation methodology differentiates us from Ag/Consultants using alternative excess residual fertilizer methods (e.g., deducted in the first year under IRC §180); whereby
• If soil test data and crop rotation records are still on hand and available by the farmland owner, we can reach back to as early as 2004 to capture previously missed fertilizer deductions, which would require the filing of IRS Form 3115.
• Anyway, the amount of deduction will depend upon the then current price of each nutrient and its level of soil fertility determined by soil tests, plus the mix and concentration of fertilizer nutrients.
• Another differentiation factor may be our primary focus being on the dollar value of soil fertility itself; generally, we’ve not found comparable land purchase values to be readily influenced by computations of soil fertility.
• However, we do make certain inquiries to determine whether the acquired farmland was indeed a bargain purchase; and if so, soil fertility would be discounted, accordingly.

And then, the farm landowner’s tax benefits derived will depend upon his/her particular tax situation including marginal income and self-employment tax rates from each year’s tax deduction.

After realizing the specialness with what we do, in both tax law and soil science required from years of experience, these past and ongoing efforts culminate into a FertileDirt™ report we can efficiently and professionally deliver, which will more than likely allow your fertilizer nutrient tax deduction to pass muster under scrutiny when appropriately applied to your particular situation—ideally by your CPA or tax advisor.