Timber tax advice can help forest owners realize benefits

Family forests provide many valuable goods and services that extend beyond their borders, including clean air and water, wildlife habitat, and carbon sequestration.

Although forest land owners are generally not paid directly for these benefits, there are tax incentives that can be associated with management activities. Landowners are often unaware that reforestation, timber sales or disaster losses can affect their taxes. To help you, Forest Service experts and their colleagues provide federal tax information through Annual Timber Tax Tips.

“Fiscal provisions are among the few ways in which state and federal governments encourage the maintenance and wise management of private forests,” says Greg Frey, a forestry researcher who co-authored the guidance and specializes in forest taxation, non-timber forest products and common goods. goods. “Tax Tips highlights the relevant provisions of tax law. Many of them are beneficial to family forest owners. But not all landowners – or foresters or even tax preparers – know about them or know how to use them.

Frey says favorable incentives allow most stumpage sales to benefit from lower capital gains tax rates and a special deduction for reforestation expenses. In both cases, and in others, forest owners and their advisors need to know the requirements and the application to their situation.

The post provides scenarios

The 2021 Timber Tax Tips publications help provide this information. The post also walks the user through the calculation steps, like this example on conservation-focused cost-sharing payments:

In 2019, Joe harvested 50 acres of timber from his investment property in Georgia and received $75,000 from the buyer. It was his only property income for the past three years. In 2021, he reforested the land at a cost of $12,500 and received a cost-share payment of $5,000 from a qualified program.

His tax advisor used the Farm Credit System Bank interest rate for the region (5.25%) published by the IRS as the discount rate to calculate how much of the cost-sharing payment he could exclude. of their 2021 gross income. A statement is attached to their tax return outlining the eligible cost-sharing program and the calculation of the exclusion. Joe can exclude the entire $5,000 cost-share payment from his gross income:

Step 1. (10% of the three-year average) = 10% × ($75,000 ÷ 3) = $2,500

2nd step. ($2.50 × number of acres affected) = $2.50 × 50 = $125

Step 3. $2,500 from Stage 1 is the highest number; calculate $2,500 ÷ 5.25% = $47,619

Step 4. $47,619 is greater than $5,000. Joe can exclude the entire cost-sharing payment of $5,000 from his gross income.

crush the confusion

The lead author is Yanshu Li, assistant professor of forest economics and taxation at the Warnell School of Forestry & Natural Resources at the University of Georgia. She says the posts address a variety of issues that can confuse landowners.

“The 2017 tax overhaul has generated some confusion among landowners and their tax advisors about the tax treatment of certain forest-related expenses, property taxes and accident losses,” she explains. “Some forest owners are also wondering if they could take advantage of the new small business tax deduction. Tax Tips solves these problems.

She adds, “Forest owners who suffered timber losses as a result of a natural disaster in 2021 can recoup some of their losses by claiming federal income tax deductions.

The key to taking advantage of tax incentives is advance planning. Timber tax tips can help explain the basics of the connection between federal income tax and forestry, but experts suggest landowners consider current or future revenues and costs related to their forest lands and to speak to a tax advisor about the implications.

In addition, individual states have property and income tax incentives, and property owners can speak to their tax advisor, local tax assessor, or forester to learn more about the programs available in their state. Although the details vary, each state in the United States has a property tax program that reduces taxes for forest owners.

Sosbe writes for the USDA Office of Communications.

Source: USDA Forest Service, solely responsible for the information provided and exclusive property of the source. Informa Business Media and all of its affiliates are not responsible for any content contained in this information asset.