Question:
How do you determine the soil fertility base, when wanting to figure "excess fertility" for a Residual Soil Fertility tax deduction?Answer:
First of all, the question is related to an IRS rule and is technical. As in the case of most tax rules, the best advice is to talk to a tax professional, in this case, a tax professional who has experience in residual fertilizer deductions.
To help you obtain some general understanding, I recommend reading the following article: Deducting Residual (Excess) Soil Fertility - Does the Concept Apply to Pasture/Rangeland? - U of I Tax School.
Below is a summary of procedures as described in the article, hope it helps.
“To begin with, farmland that has an actual excess soil fertility base typically commands a price premium upon sale. This is similar to the way farmland with additional assets, such as good fencing, field drainage tiles, or grain storage facilities, is valued at a premium. For residual fertilizer supply, the excess amount can be measured through grid sampling, which typically costs about $4–$8 per acre. Agronomists and agricultural soil testing labs follow established guidelines to determine the average (base) soil fertility levels for various soil types. By collecting grid soil samples and comparing their fertility levels to the baseline guidelines for the soil type, the amount of "excess" fertility on a purchased tract of farmland can be established.
The key is to obtain data on the base soil fertility for the soil type found on the purchased farmland, using comparable tracts with similar soil types as a reference. Once the baseline is established, soil sampling on the purchased property will reveal whether excess residual fertilizer is present. It is important to perform soil sampling on or before the buyer takes possession of the farmland. For farmland acquired through inheritance, sampling should occur before any new fertilization is applied.”