Zack Porter is the Vice President and co-owner of Boa Safra Ag Services, a tech–enabled service specializing in Legacy Nutrient Deductions (LNDs). These federal tax deductions allow agricultural landowners to write off the value of essential nutrients already present in the soil at the time of purchase or inheritance of their property.
Hosted by Tyler Davis, this episode of In Our Expert Opinion Podcast covers everything from IRS compliance and Section 180 deductions to forensic agronomy and the growing use of LNDs in deal structuring and long-term land investment strategies. Listeners will gain a clearer understanding of how LNDs work, who qualifies, and how this often-overlooked tax strategy can unlock meaningful savings and enhance returns on agricultural land investments.
Below is an excerpt from the interview. Listen above for the full podcast.
Zack Porter, Vice President at Boa Safra Ag Services
What are Legacy Nutrient Deductions (LNDs)? LNDs are a federal tax deduction available to owners of farmland, ranchland, and in some cases, even timberland. They are based on the value of the excess agriculturally necessary nutrients present in a landowner's soil at the time that they take title to the property.
The operative theory behind those deductions is that, over time and in the absence of good agronomic stewardship, as you produce and harvest a crop or as you graze your acres, you would be systematically removing those nutrients from the soil. Theoretically, over time, the land would become less productive, but it gets treated just like any other form of accelerated depreciation. So, there are no requirements at this point for any sort of ongoing monitoring, practice changes, or anything like that. This is simply a one-time deduction per owner of the land that requires a one-time analysis and incurs a one-time cost.
What is the statute of limitations for LNDs? There are four sections of the federal tax code that CPAs will allow people to pursue these deductions under. Those range from Section 180 over to the broader repositories for depreciation and depletion, which include Sections 167, 168, and 611; each of those behave a little bit differently from each other. Section 180 is largely limited to properties that were purchased or inherited in the current tax year, where the owner of that land is also actively engaged in agriculture.
The land has to be in some sort of agricultural use. For Section 180, it's limited to [property] that you picked up in the current year, and you, as the landowner, are active in that agricultural activity. If you meet those two criteria, Section 180 will allow you to take 100% of that deduction in that current year.
The other three sections of code are far more lenient. They are more applicable when you purchased or inherited a piece of land in a prior year, and/or you're either an active or a passive participant in that agricultural activity. The trade-off for those other three sections of code is that, unlike Section 180 where you can take that deduction all in one year, you have to spread the deduction out over a certain number of years.
In this episode of In Our Expert Opinion Podcast, Zack Porter of Boa Safra Ag Services joins Tyler Davis of Saunders Real Estate to discuss Legacy Nutrient Deductions, which are federal tax deductions that allow agricultural landowners to write off the value of essential nutrients present in their soil.
How are LNDs beneficial in real estate? There are a myriad of different ways that we've learned about here. In a competitive bidding situation, if you're a buyer and you know that you can pursue this deduction, and you want to make sure that you win that bid no matter what, you could walk into that auction room and say, “Highest bid in here, plus my tax bracket.” Because as soon as you take the deduction on the back end, you're not paying any more than anybody else would have in the first place.
How many times have you seen buyers and sellers get into a loggerhead situation over something that may be totally immaterial on a deal, and it causes that deal to break or just drag on, which increases the risk of closing? Well, now you can insert this deduction into that conversation as a way to help close that bid-ask spread.
It's also totally changed how certain buyers view agricultural land as an asset class. We just got done working with a client who tends to pay about $75 million a year in taxes from nonagricultural sources; and sure, he could go buy another plane, a new truck, a new boat, or a bunch of really fun toys that will create depreciation for him, but at the end of the day, he's not building his balance sheet with that. What guys like that have started to do is say, “Hey, wait a minute, I could be buying diversified portfolios of agricultural land.” When you look at LNDs, plus other forms of depreciation, you can start to actually become very efficient per dollar of CapEx in terms of overall depreciation.