Tax implications for forest landowners depend on the activity or activities on your land.
Tax Tips for Forest Landowners: 2022 Tax Year (PDF) can help forest owners understand the basics of forest-related federal tax provisions and how that relates to income tax planning.
Tax Tips for Forest Landowners is an annual information and educational publication developed by the USDA Forest Service in partnership with the Warnell School of Forestry & Natural Resources, the University of Georgia, and the Institute of Food and Agricultural Sciences Extension at the University of Florida.
Bottom line: if you own forested land, you should understand how U.S. tax laws pertain to you.
“A lot of people don’t always know what to ask about,” says Greg Frey, a Forest Service research scientist whose focus includes forest taxation, non-timber forest products, and common property. “Educating yourself and finding help from professionals is among the most important things you can do.”
An excellent place to start for landowners is to understand the tax classifications:
- Personal use or hobby: Your primary purpose for owning the property is for personal enjoyment or hobby rather than making a profit. Tax deductions are limited under this category.
- Investment: You have a profit motive for the property; however, your activities don’t rise to the level of a trade or business. Specifically, your primary purpose for owning the property is to make money, such as timber income or property appreciation, but the activity on the property is not continuous or regular. Tax deductions are relatively limited.
- Trade or business: You have a profit motive, and your forestry activities are conducted in a businesslike manner. Your involvement in the business may be material participation or a passive activity, which is determined on an annual basis. Material participation implies regular, continuous, and substantial activity and will result in more favorable tax deductions. Losses from passive activities are only deductible against passive income.
In addition to the Tax Tips for Forest Landowners, the Forest Service is a partner in the National Timber Tax website. The site includes information about federal and state tax laws, estate planning, and other information for timberland owners.
Although the Forest Service publicizes the tips, the agency or its employees do not provide specific tax advice to individuals.
“We are not tax specialists,” Frey said. “Some people are unaware of some basic benefits and provisions that landowners can use to lower their taxes. We encourage people to contact their accountant, tax attorney or the Internal Revenue Service to get answers to their specific questions.”
This story was originally published as a Forest Service Feature Story.
Access the Tax Tips for Forest Landowners: 2022 Tax Year (PDF).