Issue 15 - Science You Can Use!
Tax Incentives Available to You as Private Forest Owners
by John Greene
The Federal tax code contains several provisions than can help you and other private forest owners keep your land in forest and practice good stewardship. Some are general business provisions available to all taxpayers who hold property or other assets to produce income, while others are specifi cally for forest owners. Among the most benefi cial general provisions are:
Long-term capital gain treatment of qualifying income— Income from the sale of timber that you have held for over 12 months can qualify as a “long-term capital gain.” The maximum capital gain tax rate for individuals is 15 percent, compared to 35 percent for ordinary income. Through the end of 2009, the tax rate is 0 percent for long-term capital gains which, when added to your ordinary income, fi t under the ceiling for the 15-percent bracket for ordinary income ($67,900 for married taxpayers fi ling jointly in 2009).
Depletion deductions— When you sell timber, you can also recover your investment in the trees sold by taking a depletion deduction. The deduction is equal to your basis (investment) in each unit of timber sold.
Annual deduction of management costs—You can deduct “ordinary and necessary” forest management costs you incur each year. This doesn’t include reforestation costs—which have their own provisions—but does include such costs as a timber cruise, brush control, midrotation fertilization, timber stand improvement, or protecting your forest from fi re, insects, or disease. For investors these costs are “miscellaneous itemized deductions,” which combined with other such expenses, are deductible only to the extent they exceed 2 percent of adjusted gross income.
The Federal income tax provisions specifi cally for forest owners are:
Reforestation incentives—You can deduct outright up to $10,000 per year of qualifying reforestation costs and amortize any additional amount over 8 tax years. The reforestation tax credit has been eliminated.
Special treatment of qualifying government cost-share payments— You can elect to exclude from your gross income a calculated part of payments from qualifying government cost-share programs. Payments under all of the Federal cost-share programs listed below, as well as some state programs, qualify for exclusion. Because of the way the excludable portion is calculated, it is likely you will be able to exclude the full amount of a cost-share payment if the treated area was harvested in the past 3 years, but only part of the payment if it was not harvested.
John Greene is a research forester with the SRS Forest Economics and Policy unit in Research Triangle Park, NC.
Haney, H.L., Jr.; Hoover, W.L.; Siegel, W.C.; Greene, J.L. 2001. Forest landowners’ guide to the Federal income tax. Agric. Handb. 718. Washington, DC: U.S. Department of Agriculture Forest Service. 157 p. [Update to be available in 2010].
Wang, L.; Greene, J.L. 2009. Tax tips for forest landowners for the 2009 tax year. Manage. Bull. R8–MB 134. Atlanta: U.S. Department of Agriculture Forest Service, Southern Region. 2 p.