Pasture and Forage Minute: A Closer Look at Section 180, Forage Inventory Season

Closeup of man preparing tax forms
IRS Section 180 allows landowners to treat the residual fertility present in the soil at the time of purchase as a deductible cost. Though the deduction should be filed during the year of land purchase, landowners may be able to file an amended tax return for a previous tax year. It’s important to consult your CPA or tax advisor to understand your options and file accordingly.

Pasture and Forage Minute: A Closer Look at Section 180, Forage Inventory Season

What is IRS Section 180

By Shannon Sand

With recent land purchases, some are asking questions to learn more about IRS Section 180 and how it may provide tax deductions in the year of purchase. Let’s explore more about this tax code.

What is this code and what may it have to do with the purchased ground?

Section 180 states that “In general: a taxpayer engaged in the business of farming may elect to treat expenses, which are usually not chargeable to capital account expenditures, as chargeable to the capital account, which are paid or incurred during the taxable year. Qualified purchases or acquisitions include fertilizer, lime, ground limestone, marl, or other materials to enrich, neutralize, or condition land used in farming, or for the application of such materials to such land. The expenditures so treated shall be allowed as a deduction.

This means that Section 180 can potentially allow landowners of newly acquired land to treat the residual fertility present in the soil at the time of purchase as a deductible cost. Typically, an IRS section 180 tax deduction must be filed in the same year the land is purchased. However, opportunities may exist to file an amended tax return up to three years after the land was purchased.

A couple of important things to note if considering talking to your accountant about Section 180 is that if the owner was previously the renter (i.e. the land was rented by you prior to purchasing), there is no deduction since they already deducted the cost. The other thing of importance is that the owner is deducting “excess” fertility and cannot deduct all nutrients present but just what is more than “normal”. Ideally, a producer should conduct soil sampling before or shortly after the land is acquired and before additional fertilizer application.

Landowners may realize some tax savings by deducting the value of pre-existing soil fertility. The value of the residual fertility load and the applicable landowner tax rate determine the savings. The landowner must determine deductions with support from their CPA or tax advisor.

Inventorying Remaining Forage Supply

By Todd Whitney

Extreme January cold temperatures and high snowfall challenged many livestock producers. However, Groundhog Day (Feb. 2) pegs the mid-point of winter, so now may be a good window of time to inventory your remaining winter hay and forage. Remember, you can’t effectively manage what you do not measure.

Whether you have enough hay and forage to last the remainder of winter may depend on weather factors beyond your control, such as heavy snow cover impacting pasture grazing. Also, it may be difficult to predict if more severe cold conditions will occur in the remaining two winter months.

When making your feed management decisions, consider using best-case and worst-case scenarios. Focus on completing a thorough inventory and account for all feed resources, even counting total bales available. Calculate remaining bunker silage. Also, estimate remaining available forage grazing and assign economic values.

Compare what feed resources you have versus what your herd may need. For example, a 200-head lactating herd with average cow sizes of 1,200 pounds will need about 3.2 tons of hay per day (not accounting for waste).

Focus on making the best use of your feed resources. Would it be financially beneficial to sell surplus highest quality forage and feed the rest? If the remaining winter is mild, then selling your higher value forage could generate more cashflow toward paying taxes and land payments. On the flip side, if your feed reserves are too low, you may need to intentionally cull your cow herd and/or buy more forage.

If your cows are thin, consider the opposite — sell your lower quality forage and feed your higher quality. Thin condition score cows need more protein and energy to keep from dropping body condition and maintaining their milk production.

More forage managing educational resources are available online at CropWatch and UNL Beef.

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