6 Federal Tax Tips for Forest Owners

If you own land and are in the business of practicing good forest stewardship, there are several provisions in the tax code you can leverage to maximize your benefits.

1. Income as a Long-Term Capitol Gain

  • The sale of timber “on the stump” can qualify for long-term capital gain treatment, if the landowner inherits the timber, or holds it for more than one year
  • Long-term capital gains are taxed at lower rates than ordinary income

2. Deduction of Management Expenses

  • Costs incurred from day-to-day activities that are required to manage timber property may be deducted from your gross income (consulting forester fees, maintenance of fire breaks, mid-rotation fertilization treatment)
  • The property does not have to be producing income to qualify for this deduction

3. Depreciation and Section 179 Deduction

  • Landowners who hold their land for business or investment may depreciate capital expenditures (bridges, culverts, fences, temporary roads)
  • The IRS requires that land be held as an investment or as an active trade or business for capital expenditures to qualify

4. Casualty Losses and Involuntary Conversions

  • The loss of timber from sudden, unexpected or unusual events (fire or severe storm) may be deducted from your taxes

5. Reforestation Costs

  • Landowners who do not hold their land in a trust may deduct up to $10,000 of reforestation costs per year, per qualified timber property (any amount over $10,000 per year may be deducted over 84 months)
  • Qualified costs include the costs to establish or reestablish a stand of timber by seeding, hand planting or natural regeneration

6. Exclusion of Cost-Share Payments

  • Recipients of a qualified government cost-share program can breathe easy
  • A portion or all of the payment may be excluded from your income, if the cost-share is used to conserve the soil and water, protect the environment, improve the forest or provide habitat for wildlife, and the word does not substantially increase the value of the property

Forest owners can leverage the tax code to assist in the costs of good forest stewardship while maximizing the returns from their investment. Contact a consulting forester or accountant for guidance to help you make the most out of what you will have in the future. These tips should not be taken as accounting or legal advice.

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