Agronomy Tech CEO Kenny Avery: Section 180 Interest is Growing

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Every farmer knows that most of the future value is the land, but more may be realizing that what is in the dirt may grow extra value. Section 180 in the federal tax code allows farmland owners to recognize the value of residual fertility in their soil and potentially claim a tax deduction.

Kenny Avery, CEO of Advanced Agrilytics, told American Farmland Owner that some Americans are now discovering Section 180, 66 years after its creation.

“It allows farmers to take a tax deduction on excess minerals in the farm,” Avery explained.

Kenny Avery Bio

Advanced Agrilytics -- CEO

• Avery Consulting -- Former CEO

• Bloom Fresh -- Former CEO

• Verdesian Life Sciences -- Former President/CEO

• Monsanto -- Former Global Vegetables Lead Vice President/Vegetables and Asia Seed & Traits Global Operations Lead/Global Process Lead/Asia Pacific Vice President/Strategic Account Lead/Regional Business Director

Farmers spend money building fertility in their fields. Perhaps, it's through fertilizer or lime. Or maybe it's with ground limestone or marl. The residual fertilizer from those enhancements has value.

How Do You Claim Section 180 Deductions?

The experienced expenses to help improve the condition of their land could result in a claim for a Section 180 deduction.

That deduction could help farmland owners and investors who have accumulated land but don't have enough traditional operating expenses to offset income.

“A lot of farms in the United States, they have a land company, and then they have an operating company,” Avery said. “The operating company is the farming operation, where most of the expenses and most of the revenue is tied up.”

The land-owning entity, meanwhile, often has fewer deductions.

“The land company usually rents the land to the operating company,” Avery said. “But there's not a lot of deductions at that land company, and so this actually falls typically into that land company.”

What Are the Benefits of Section 180?

That distinction could make Section 180 worth discussing with a tax professional for investors who own farmland through a separate land-holding entity.

Calculating the value is field-specific.

“Farms are fields,” Avery said. “And typically, they're named for somebody that owned the field 30 years ago.”

Advanced Agrilytics uses soil data and field boundaries to calculate the potential residual fertility.

“We go field by field,” Avery said. “We pull a soil sample...most farmers already have soil samples...we look at the soil samples, and then we establish for each geography what the critical levels are.”

Think of that critical level as the baseline.

Avery offered a hypothetical example: If the baseline value of fertility in a field were $1,000 and the soil test showed $1,500 worth of nutrients, the $500 difference could represent excess fertility.

“You would take the 500 excess times whatever the price of nitrogen was, then that's your value to be deducted,” Avery said.

The deduction isn't necessarily taken all at once.

How Are Section 180 Deductions Spread Out?

Avery said Advanced Agrilytics provides a depletion schedule, generally spreading the benefit over four to five years.

That makes sense because the nutrients aren't disappearing overnight. The farmer is using them over time.

“If it's excess, you're supposed to use it, right?” Avery said. “So, if you're depreciating, you're utilizing it.”

For farmland owners, the potential opportunity extends beyond land that is being actively farmed by the owner. Avery said the approach can apply to farmland and pastureland, and it can also potentially apply to inherited property, depending on the circumstances and the owner's tax basis.