Line 17 - Fertilizers and Lime

Farmers report and deduct fertilizer, lime, and other soil amendment expenses on Line 17, Schedule F. If the benefits last one year or less, farmers may deduct the expense in the year they incur it. Because the benefit of fertilizer and lime, however, usually extends beyond one year, the general rule is that farmers must capitalize and deduct the expense over the term of the fertilizer’s useful life.

I.R.C. § 180, however, allows those engaged in the business of farming to elect to immediately expense the cost of fertilizer and lime (where the benefits last substantially more than one year), rather than to capitalize the expense and depreciate it over the term of its useful life. The election is for one year only, but once such an election is made (by reporting the fertilizer and lime deduction on Schedule F, Line 17), it may not be revoked without the consent of the IRS. This provision applies both to tenants and landlords if the rent is based upon production. Cash rent landlords who do not materially participate in the farming operation may not take advantage of section 180. It is also important to note that the section 180 deduction applies only to “land used in farming,” which is defined as land used “by the taxpayer or his tenant for the production of crops, fruits, or other agricultural products or for the sustenance of livestock.” Initial land preparation costs are not deductible.

Note: For information about deducting residual fertilizer on a purchased or inherited farm, read this article.

Example 1. Bonnie raises eggplant and squash varieties on her farm. She regularly conducts soil fertility tests and follows the advice and guidance of the soils laboratory. This year, Bonnie applied $35,000 of fertilizer and lime to her fields. She chooses to currently deduct this expense by making the I.R.C. § 180 election and reporting the $35,000 expense on Line 17, Schedule F.

Example 2. Jakob has a diversified crop farm. He typically spends $100,000 on fertilizer and lime annually and deducts this cost by making the election under I.R.C. § 180. This year, because of adverse weather conditions, Jakob is facing a farm loss. To boost his income, Jakob decides to capitalize and amortize his 2021 $100,000 expense over 5 years. This boosts Jakob’s 2021 farm income by $80,000, prevents a loss, and may entitle him to other benefits such as the earned income tax credit.

Jakob’s tax preparer places a note in the file with a reminder to deduct the remaining $80,000 over the course of the next four years: