Understanding IRS Depreciation for Soil Fertility on Farmland

Many landowners don’t realize that a portion of a farmland purchase may be depreciable under IRS rules—specifically related to soil fertility. Under IRS guidance and case law, the cost allocated to wasting farm assets, such as residual fertilizer, lime, and soil nutrients present at the time of purchase, may be depreciated rather than added permanently to land value. While land itself is not depreciable, the IRS recognizes that certain soil fertility components are consumed over time through crop production, making them eligible for depreciation if properly documented. 

To take advantage of this, buyers typically complete a soil fertility allocation study at or near the time of purchase. This study measures existing nutrient levels (such as nitrogen, phosphorus, potassium, and lime) and assigns a value to those nutrients based on current input costs. The allocated fertility value is then depreciated over its useful life—often between 4 to 7 years, depending on crop rotation and nutrient depletion rates. This can create significant front-loaded tax deductions, improving cash flow in the early years of ownership.

For producers and farmland investors, especially those acquiring irrigated or high-quality dryland acres, soil fertility depreciation can be a powerful but underutilized tax strategy. It is most effective when paired with professional soil testing, proper purchase price allocation, and coordination with a CPA familiar with agricultural taxation. When done correctly, depreciating soil fertility can materially reduce taxable income while preserving the long-term productive value of the land.