Search:
""

Forest Taxation

Regional Coordinator:
[Vacant]
USDA Forest Service
Cooperative Forestry,
  Suite 850S
1720 Peachtree Road,
   N.W.
Atlanta, GA 30309

Taxes are a major cost of doing business.  Proper tax planning is just as important as the silvicultural techniques used to grow a profitable timber crop.  Hence, to increase your revenues, you should be aware of the special income tax provisions that are available so that you can earn optimum income from your forestlands. Congress provides these favorable advantages and elections TO STIMULATE INCREASED PRODUCTIVITY from the nation’s privately owned forestlands.

You should have a general knowledge of these provisions whether you prepare your taxes yourself, or have someone else prepare your return for you. Most tax accountants are not familiar with all of the special provisions available for private forest landowners. The tax code is very complex and these special provisions are quite obscure. Hence, you need to be aware of them so that you can inform your tax accountant.

Here are a few special provisions that you should know in order to avoid paying unnecessary income taxes:

  1. Landowners can deduct outright the first $10,000 of qualified reforestation expenses during the tax year. In addtion, landowners can amortize (deduct) over 84 months all reforestation expenses in excess of $10,000. This special advantage is available only to timber growers -- with only a few specified exceptions.
  2. You must have a profit motive to claim business or investment expenses, but you do not have to have a profit three out of five consecutive years.   An expanded definition for “profit” is particularly relevant to timber.  “Profit” also includes appreciation in value of assets.  Hence, timber growing meets the profit definition since it appreciates in value through physical growth and enhanced quality over time -- even though it may not be harvested for a period of many years.
  3. Generally, you get the best tax treatment if you are “an active participant in the trade or business.”  The passive rules apply, but it is not difficult for you to meet these requirements if you so choose.  However, you must report your business expenses in a consistent manner and dispose of your timber under the provisions of Section 631.  Note: After December 31, 2004, both "pay-as-cut" and outright sales qualify for captial gains treatment under section 631(b).
  4. You should maintain, and keep current, in your tax records IRS Form T (Timber) Forest Activities Schedule.  You should also attach the appropriate parts of Form T to your tax return when specified by the instructions included on this form.

Listed below are several publications and websites that are available on the Internet that cover timber taxation issues for forest landowners.  Be sure and check them out before you sell your timber, acquire new timberland, or reforest!