Teaching Tax Flow: The Podcast

This episode dives into Untapped Tax Deductions for Farmers!

You'll hear all about an overlooked tax strategy dedicated to landowners and farmers, featuring special guest Chris Streit from CSA Partners. The episode promises to deliver crucial insights into residual soil nutrients as a tax deduction, a little-known opportunity that could potentially save farmers significant money.

Throughout the episode, Chris reveals the importance of leveraging nutrient-based tax deductions in farming. This specific deduction, often missed by farmers and tax professionals alike, revolves around the excess nutrients left in the soil by previous landowners, demonstrating a key opportunity to optimize tax filings and improve financial well-being.

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  • (00:03) - Untapped Tax Deductions for Farmers Revealed
  • (02:37) - Depreciating Soil Nutrients as Overlooked Farm Assets
  • (06:27) - Tax Deductions for Landowners in the Farming Industry
  • (08:46) - Tax Benefits and Strategies for Farm and Real Estate Owners
  • (12:43) - Tax Strategies for Farmers and Multigenerational Farm Ownership
  • (18:10) - Financial Advice Disclaimer and Affiliation Details

Creators and Guests

Host
Chris Picciurro
Founder, Teaching Tax Flow
Host
John Tripolsky
VP of Marketing, Teaching Tax Flow
Guest
Chris Streit
CEO, CSA Partners

What is Teaching Tax Flow: The Podcast?

Welcome to “Teaching Tax Flow: The Podcast”, the show that’s all about demystifying taxes and helping you keep more of your hard-earned income in your pocket.

Hosted by tax experts from the Teaching Tax Flow team, this unfiltered (but clean) podcast is designed to empower you with the knowledge and tools you need to confidently navigate the world of taxes. We’ll cover everything from understanding tax laws and regulations to maximizing deductions and credits.

In each episode, we’ll break down a specific tax-related topic in a clear and accessible way, providing practical tips and strategies you can use to optimize your tax situation. We’ll also answer listener questions, share the mic with amazing guests, and share real-world examples to help illustrate key concepts.

Whether you’re a freelancer, small business owner, real estate investor, or just looking to understand your taxes better, this podcast is for you. So tune in, take notes, and start building your confidence in taxes today.

Produced and hosted by Teaching Tax Flow.
www.TeachingTaxFlow.com

John Tripolsky:

Welcome back to the podcast, everybody. Today, we are gonna look at something for those farmers. That's right. We're gonna look at a giant possible miss... I would say not misused, overlooked.

John Tripolsky:

Let's use the word overlooked, tax, strategy, deduction, everything rolled into this mix. We're gonna talk about something really special for you guys here. We've touched on this a while back in a previous episode where we touched on some agriculture stuff, but here's another one for you. And again, welcome back to the Strategic Associates studio. Those guys, thank you for supporting us all the time as we bring all these topics to the forefront for our community.

John Tripolsky:

But enough for me, I'm gonna kick it over to Chris Picciurro, my cohost here, to introduce our guest and let us rip into this topic.

Chris Picciurro, CPA:

Thanks, John. I'm very excited about our guest today, Chris Street from CSI Partners. We have uncovered some typically untapped, unidentified deductions for farmers, and we know that tax laws are written to encourage and discourage certain behavior. We know that farming has a lot of favorable tax rules associated with it. However.

Chris Picciurro, CPA:

The lot... There is something right beneath our feet, if you're a farmer, that you might be able to take advantage of. We couldn't imagine having a better special guest, Chris Street. Welcome to our podcast. How are you doing today?

Chris Streit:

Thanks, Chris. I'm do... Doing great. I'm surviving the heat, here in Texas, but, I'm doing awesome. Thanks for having me on.

Chris Streit:

I hope you guys are doing well also.

Chris Picciurro, CPA:

Well, luckily, last time we got together, we were both in an air conditioned building, watching some pickleball, and, that was that was a lot of fun. So I... When I was out in Dallas, I appreciate that time, and I learned even more about these opportunities that farmers have. And and quite frankly, Chris, I have been practicing for almost twenty five years. And until we connected and started talking and our team started collaborating, I didn't know about this untapped deduction, which has been around a long time.

Chris Picciurro, CPA:

Can you tell us what many farmers are missing right now?

Chris Streit:

For sure. And I'll also say that on the pickleball front, it did remind me watching those people, including your son, reminded me I need to stick to tax, because of just how incredible they are. But yeah, So farmers, when they acquire a farm, they of course are getting a whole slew of different assets. But one of them that's overlooked is the thing that's sitting right on top of their feet, is the nutrients in the soil. So high level is is when you when you buy a farm, you of course have a soil that you can see with the naked eye, but within that, and within the the elements of it, there's critical level needed to farm, but there's excess critical level.

Chris Streit:

That excess was created by the prior owner fertilizing or over fertilizing. Those things that sit on top of that critical level are depreciable assets. If you can identify them, measure them, and determine their life. It's very simple in the code to do it that way, but that's something that's overlooked, and it's complex to be able to do it appropriately. But that's what they're sitting on to the tune of maybe $1,000 to $2,000 an acre of a deduction.

Chris Picciurro, CPA:

And so typically, for those of you that don't know, when you purchase a farm or a business or any type of real estate asset, as a tax professional, what we're doing is we are breaking out the building portion of that and depreciating it. Depreciation... It's confusing for real estate investors and... Because depreciation sounds like a negative, like it's going down in value. It's just a way to recover the cost.

Chris Picciurro, CPA:

And the land is not deductible in general. Land is part of your cost basis, but there's no deduction for the land. And that's why this is commonly missed in farms because if you use or there are many times where, like Chris Street is saying, that there's actually saw a depreciation deduction for lack of a better term sitting in that in that land. And, and like you said, it could be a significant amount per acre. Now, when we buy a a fixed asset, it will get depreciated or written off over between three years and and, forty years depending on what it is.

Chris Picciurro, CPA:

When it comes to these deductions in the soil, what is the what's the deduction time frame for that? I mean, how do you do you have to write it off over time? Can you deduct it immediately? Can you give us a little bit of information on that? Yeah, that's one

Chris Streit:

of the interesting pieces out there, some of your viewers might see some of the content out there on this. You'll see people referencing something called Section 180, which is an expense election for fertilizer applied in the year of. That's the history of where it starts. A lot of people actually misquote it. So what Chris Picciurro was just talking about was the three year to forty year is something called MAKRS, which without having to do too much tax research, it's basically a guideline for how something ages and how you can depreciate it.

Chris Streit:

It sets up the stage for us to know pretty much tangible assets, things that have recovery. What predates that is a section that still exists today for the explicit purpose of things that don't have recovery, things that don't have a tangible nature to them, things like software, things like trademarks, and even things like nutrients in the soil that are there in excess. So ultimately, the way you look at how do I age something like this, you have to reference that section of code, which it is section 167, no need to go look at it. But what it says is you identify the asset and you measure it, and then you prove the age of it and how it will be depleted. That's the schedule you would use to depreciate it.

Chris Streit:

So the way to appropriately do it, it's defensible with the IRS, would be to say, take something like nitrogen, and then look at nitrogen and say, in this particular field, whether it's in Tennessee where Chris is, or if in Texas where I am, and whether or not it's a soybean field or a cornfield, it's going to deplete on a different schedule. You must use data that you have from places like the USDA and other firms who do agronomy work to say, okay, that particular nutrient will be depleted on a three year life according to its geography and according to the farm that it sits on and the and the crop that it yields. That's how you take it.

Chris Picciurro, CPA:

And let's... I've I've got a few different things because you... If if you're watching or listening right now, you might be thinking, okay. I might not have a farm. Maybe I have a farm and I just use it for my own, you know, crops.

Chris Picciurro, CPA:

I don't sell them. Or maybe you have someone in your family or someone you care about or maybe you're a tax professional that has clients that own farms. Chris, what type of farms, first of all, qualify for this type of deduction are good candidates that they... Where they should be looking at this as a potential option?

Chris Streit:

So this this deduction goes to the landowner. So it might not even be the farmer who's leasing the land, but land that's used in the business of farming. And so automatically, you could think of all the things that might come into that. You think of the traditional things that crop, that have yields, you know, the things that we eat and buy, fruits, vegetables, you know, other elements. Those are all perfectly within that range.

Chris Streit:

So those are pretty expansive, but it does expand even beyond that, even to things like ranches, and where you might have cattle. All of these things do apply, and even things where you have bigger, longer resources, things like timber and places like that, they still have eligibility for them. The big difference, kind of to your first question, Chris, is how do the nutrients deplete based on the resource that they are farming? But something used in the business of farming, it's going to apply, and the one that you might pull out that I wanted to highlight specifically is ranches. Ranches do apply as well.

Chris Streit:

So, most things used in the business of farming, if you own the land.

Chris Picciurro, CPA:

So the so the landowner is the one that that is... Might be might be eligible or is eligible for this deduction. Let's talk about you. We mentioned purchasing a farm. Do you have to have purchased a farm?

Chris Picciurro, CPA:

What if you inherited it? What if you can, you know, can... Okay. Are they still eligible for this?

Chris Streit:

They are. So in this country, approximately two thirds of the farms that change hands are through an estate. As you would expect, families keep farms in their in their family for generations. That's oftentimes a motive of the current owner. One of the benefits to that is there is a step up in basis and that ownership changes hands and they are able to do this residual fertility study as well and take that deduction.

Chris Streit:

Yes, it's perfectly eligible.

Chris Picciurro, CPA:

So similar to someone that inherits real estate, right? You get a step up in basis, even if that real estate had a was fully depreciated by the previous owner. You can. Get a step up in basis and actually do a cost segregation study on that too. So same thing with with farming.

Chris Picciurro, CPA:

That's really cool. And and as far as at what point, at what point... What size farm does this start making sense to have a professional like yourself or someone else come in and and do an analysis? Because I have to imagine that data has to be collected. Mhmm.

Chris Picciurro, CPA:

Right? What types of data would... Is collected at that point?

Chris Streit:

So the good news in many of these transactions is there's already soil samples being done because it's part of the diligence project. You wanna know what you're buying, and if it's going to... If there's good soil underneath it, it can't just look good. It has to be scientifically proven to be good. Those soil samples are the primary things that would be needed, And those are very similar to buying real estate.

Chris Streit:

Those are gonna be elements like perhaps pay stubs that are gonna be left with the title company. You have those soil samples somewhere nearby. But more data is better than no data. So to start, that's where we do wanna look, but then we do wanna look at fertilization records and yield records going back years after year after year. That does help make a stronger case, but baseline, if there's a soil sample, then we would wanna grab that.

Chris Streit:

If there's not one, there would be an upfront cost to obtain a soil sample to see if you could take it. It starts to make sense at about 300 acres. Anything below that, the fee to do it on top of the deduction available might not make sense. It might be counterintuitive.

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Chris Picciurro, CPA:

That's what we call in the Teaching Tax Flow System, our IQ test, right? Identify, strategy, quantify, result, and it's... The cost benefit has to be there. Now we know and and we have a lot of content on cost segregation studies, we know if you're a real estate investor, let's say you've owned a building for four years and you never had a cost segregation study performed, you can go back. I call it your get out of jail free card and do a cost segregation study subsequent to the year you acquired the property.

Chris Picciurro, CPA:

What about farming? What if you have a taxpayer that's owned a farm for five, six, seven, ten years has never taken a look at this opportunity? Can they still do this, or does it have

Chris Streit:

to be done the year they acquire the farm? So they can do it retroactively, just like a cost segregation. What's interesting is cost segregation is going off of the 168 tax code. This is going off the 167, which again, is just basically anything that doesn't have a recovery. So you can do a Form 3,115, and you can do catch up appreciation.

Chris Streit:

The key things that are a little bit different than they are with cost seg in this instance is how do you value a nutrient from say twelve years ago? You can't call, you know, your local hardware store and say, what are you guys selling nitrogen for today? It needs to be what it was ten years ago. So that's where from a dataset standpoint, we do have all that data and work with a really, really good agronomist to be able to say nitrogen twelve years ago or thirteen years ago was priced X. So you use that, you identify what was excess then and what remains today, and that helps you determine what you can depreciate.

Chris Streit:

And to your IQ element in the flow, the same thing would happen with if it was a new farm or an old one, look to see how much is there, and if it's even worth your time. That's something we can do before there's ever any dollars that change hands or an engagement takes place.

Chris Picciurro, CPA:

And you mentioned many farms are multigenerational, and many times a farm, they realize that the... That's appreciated a lot, and they actually want that inheritance, that step up in basis because they might want to preserve the property tax treatment. There are other things involved. Right? But my question is, do...

Chris Picciurro, CPA:

Are individuals only eligible for this? But what what if a farm's in, like, a family limited partnership or an LLC and there's multiple owners? Can the... And and at an entity level, if it owns a farm, potentially get this deduction, then pass it along through a k one form? A k one form is just a tax form that passes along the income and deductions and credits of an entity to its members or shareholders.

Chris Streit:

It works just like that, and actually you see in many cases, these are in business entities, and they do flow down to the K-one holders, especially when you're thinking about an estate if your children are part of it. So yes, that works excellent. I do wanna mention, since we have talked about cost seg, I do think a lot of farmers aren't aware and they think they've used bonus depreciation when they bought their tractor, which is probably true, or their equipment. But with inside of this as well, there's typically a lot of improvements to the land that when paired with this deduction, invert the cash flow benefit for them because they can pull forward a lot of those assets that might be depreciating faster than say, some of the nutrients in the soil. So they do pair together in a nice way.

Chris Picciurro, CPA:

And if you're watching or listening, if you, you know. Don't be... If you're a tax professional, it's a funny Chris. We've had... Have a lot of tax professionals that watch and listen to this podcast.

Chris Picciurro, CPA:

I never thought... I didn't think that was gonna be a big consumption beast, but you... If you're listening to this and you're thinking yourself, okay. I know I've got some clients that have farms. Oh, maybe look at through those multi member LLCs.

Chris Picciurro, CPA:

Look at those schedule f's. It it would be worth it for you to reach out to your clients and just ask them, well, how many acres is the farm? Because a lot of times we don't know as a tax professional. We have the income statement or balance sheet, but we don't necessarily know the insight in, you know, how many acres the farm is. And and don't feel bad if you've never heard of this because, heck, I hadn't heard of this in twenty plus years either.

Chris Picciurro, CPA:

So like Chris Street's saying is the advantage is now we can go back. We can use a get out of jail free card. Right? And we can go back and say, hey. Even if the farm's been operational for over a decade, there still might be opportunities available.

Chris Picciurro, CPA:

And I love pairing this with other tax strategies. So let's say you're sitting on a huge deduction. You might wanna do a Roth conversion to pair it. It just gives you a lot of opportunity. Or if you're a farmer and you're thinking to yourself, I have never heard of this.

Chris Picciurro, CPA:

My tax professional didn't tell me about this. Guess what? If you're one of our clients, I wouldn't have told you about it either. You know, so that's... So this is great.

Chris Picciurro, CPA:

This is why we uncover these things and and talk to your tax professional about it. Reach out to us here, and we're gonna help help you and get connected. And Chris, any final words of advice for, you know, someone considering should this... Does this make sense? Because you made another good point as far as I...

Chris Picciurro, CPA:

You know, the estate side of it. Right? Because a lot of times those farm will go into an estate or a family trust as well, and then you're saying that's eligible?

Chris Streit:

Yes, so I would say if there's a farm changing hands or a changed hands, let's say, since 2010, this would be worth certainly considering. And if it's something that, you know, you wanted to have a discussion with your CPA about or in tandem with us, that's typically the way we approach it, because to your point, Chris, I have a massive amount of respect and empathy for people who actually do the full tax return because nothing's consistent, it's always changing, every client's different, and then there's a lot of bad information out there. I mean, anybody can just throw up content and say this is a strategy, and this kind of fits in that bucket. So what I would say is, yeah, once you get it, vet it, get more information on it. If we can help provide that information broadly or specific to a farm, it can help allow for a major free and capital for farmers.

Chris Streit:

For those who don't know a lot of farmers or have farmer clients and haven't really stepped into their shoes or their boots, It's a challenging world out there for farmers. Fertilizer is getting more expensive. They do have a lot of pressure to sell to larger companies, especially if there's an estate, maybe the kid doesn't want it financially, or they don't understand what's gonna happen financially, this is one of the best ways to set them up for success in maintaining the legacy of your farm. Personally, I never had ever any interest in owning a farm. Because of this deduction, I'm actually looking into it now.

Chris Streit:

Because of what's available. That's the type of thing that doesn't just create generational wealth. It helps maintain it and preserve it. And that's what we'd like to help do.

Chris Picciurro, CPA:

Well, thanks again. We appreciate it. I know that members of the Teaching Tax Fell community that know farmers love farmers or are a farmer, willing you to take a look at this, and I hope you have a great rest of the day.

Disclosure:

The information in this podcast is educational and general in nature. It reflects the opinions of Teaching Tax Flow and does not take into consideration the viewer's personal circumstances. It is not intended to be a substitute for individualized financial, legal, or tax advice. Consult the appropriate qualified professional prior to making any decisions. Securities are offered and supervised through Cabin Securities Inc member, FINRA SIPC.

Disclosure:

Investment advisory services are offered and supervised through Cabin Advisors LLC, an SEC registered investment advisor. Chris Picciurro is a registered representative of Cabin Securities and an investment advisor representative with Cabin Advisors LLC. Teaching Tax Flow is an independent entity and is not affiliated with Cabin Securities or Cabin Advisors.