Section 180 Soil Fertility Deductions: A Hidden Tax Strategy for Farmland Owners in West Texas

Corey Zant
Jun 2
4 min read

If you own or are preparing to buy farmland/ranchland in West Texas, the South Plains, or the Texas Panhandle, you already know healthy soil drives land values. But there’s another way it can pay off: Section 180 soil fertility deductions—a little-known provision that lets you deduct the market value of residual nutrients (N, P, K, and micros) already locked in your soil.

Irrigated farmland in the South Plains of Texas, representing the hidden soil fertility value that supports fertility deductions for farmland buyers and owners.

What Are Section 180 Soil Fertility Deductions?

These deductions come from IRS Code §§ 167, 168, 180, and 611. Under Section 180, active farmers and ranchers may deduct a large percentage of a property’s residual nutrient value—primarily phosphorus (P), potassium (K), and micronutrients—in the year they acquire it.

Many producers are familiar with Section 179, which allows the immediate depreciation of equipment purchases like tractors and pivots. Section180 functions similarly—but instead of spending cash on iron that inevitably loses value, it lets you unlock a deduction tied to nutrients already in your soil. The kicker? Unlike most equipment, land in Texas has historically appreciated in value. So at the end of the year, we all know the strategy all farmers have: buy a tractor or piece of equipment and depreciate it rather than forking it over to the IRS. Even if they don't need the tractor. What if there was the same tax saving strategy, right underneath your boots?

Why West Texas Sellers Should Care

Decades of row-cropping and ranching across Hockley, Bailey, Lamb, Parmer, Castro, and surrounding counties have built up significant reserves of P and K in many fields. With today’s fertilizer prices, those reserves can translate into five- and six-figure deductions per transaction—substantially trimming federal income-tax bills.

How the Process Works

Soil Nutrient Assessment: Conducting thorough soil tests to determine the volume and type of nutrients present at the time of land acquisition.
Valuation of Nutrients: Assigning economic value to the identified nutrients based on market prices at the time of acquisition.
IRS-Compliant Reporting: Preparing detailed reports that adhere strictly to IRS guidelines, which landowners can then present to their CPAs for tax filing purposes.

Real-World Example: Legacy Nutrient Deductions in the South Plains

Scenario: A West Texas family farm in Lamb County changes hands in 2023. The buyer purchases 640 acres of irrigated cropland (1 section) for $1.6 million. The land had been in continuous cotton and grain sorghum rotation and had been treated regularly with manure, commercial nitrogen, phosphorus, and potassium.

Step 1: Soil Testing After closing, the buyer engages a specialist firm to conduct a comprehensive soil nutrient inventory. Core samples from across the section show unusually high levels of residual nitrogen (N), phosphorus (P), potassium (K), and micronutrients due to years of conservative fertility practices and precision agriculture.

Step 2: Nutrient Valuation The agronomic team uses commodity market prices at the time of purchase (e.g., urea at $0.65/lb N, DAP at $0.75/lb P₂O₅, potash at $0.60/lb K₂O) and determines the nutrient content across the tract is equivalent to $1,850/acre in embedded fertility.

💰 Total Deduction: $1,850 x 640 acres = $1,184,000

Step 3: Applying the Deduction Since the buyer actively farms the land and materially participates in the operation, they elect to use Section 180 of the IRS code to deduct the full $1.184 million in year one. This reduces their taxable income dramatically, potentially offsetting income from crop sales, equipment depreciation recapture, or other farm earnings.

Cash-on-Cash Savings

Assume soil fertility is valued at $1,700/acre and professional testing costs $40/acre:

Marginal Tax Bracket	Cash Savings/acre	ROI on Testing
10 %	$170	4.25×
20 %	$340	8.50×
30 %	$510	12.75×
40 %	$680	17.00×

Even small farms can unlock tens of thousands of dollars in net proceeds—money you can reinvest in new acreage, equipment, or debt reduction.

Key Timing Considerations

1031 exchanges. You may still claim soil fertility deductions on the replacement property if it has adequate basis.
Recapture on sale. Deductions lower land basis, potentially increasing future gain. Many long-term holders offset this via step-up in basis at inheritance or through another 1031.

Next Steps for West Texas Landowners

Request a preliminary nutrient screen. Sampling just a few zones can confirm potential value.
Engage your CPA early. They’ll select the optimal code section and depreciation schedule.
Leverage local expertise. At Veritas Real Estate Company, we coordinate qualified agronomists, appraisers, and tax advisors so you realize every dollar of hidden soil value.

Partner with Veritas Real Estate Company

As the leading land-specialized brokerage in West Texas, the South Plains, and the Panhandle, Veritas Real Estate Company is uniquely positioned to surface—and monetize—every facet of your property’s worth, from water rights to Section 180 soil fertility deductions.

Ready to learn how much your soil could save you?📞 806-853-7355 📧 corey@veritaslandco.com] 🌐 veritaslandco.com]

Disclaimer: Always consult a qualified CPA or tax attorney before acting on any tax strategy.