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FLTC
Position on the Reforestation Tax Credit and Amortization |
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Increase the reforestation amortization amount under Section 194 of the Internal Revenue Code and the reforestation tax credit cap under Section 48 to $25,000 per year, and expand eligibility for the credit to include conservation, wildlife and habitat improvements. Background: When a timberland owner reforests a tract of land, he or she is creating a capital asset. As a general rule, the costs incurred in planting or seeding must be capitalized and may only be recovered when the trees are sold or otherwise disposed of. Section 194 of the Internal Revenue Code provides a limited exception to this rule by allowing a taxpayer to elect to amortize (deduct) over 84 months up to $10,000 of qualifying capitalized reforestation expenditures each year. The Internal Revenue Service has issued eligibility requirements for the types of ownership, acreage and expenditures that qualify for amortization. Reforestation expenditures that are eligible for amortization deductions are also eligible for an investment tax credit, under Section 48 of $10,000 spent for reforestation during the tax year. The same eligibility rules apply to the credit. Generally, if a tree has a "normal growing period" of seven years or more, it will qualify for the full 10 percent credit against expenditures, subject to the $10,000 annual cap. If the trees are disposed of within five years of establishment, the normal investment tax credit recapture rules apply. Forest Landowners Tax Council supports increasing the amortization amount and reforestation tax credit cap to $25,000 per tax year, and expanding eligibility for the credit to include expenditures for conservation, wildlife, and habitat improvements. Rationale: (a) The annual $10,000 reforestation expenditure eligible for amortization and the tax credit has never been increased for inflation since these provisions were enacted in 1980. Reforestation costs, on average, have more than doubled since then. Reforestation of forest land is one of the most important elements of maintaining America’s forest resource and promoting a healthy forest environment. Dollar eligibility for amortization and the credit must be substantially increased in order to be a sufficient incentive for encouraging reforestation of timberland. (b) Many forest landowners in the Northeast are more likely to reforest their lands for conservation, wildlife, and habitat uses rather than for timber production. Most wildlife species require multiple habitats to complete life history strategies, including habitats for feeding, breeding, rearing young, and escaping predators. Forest management practices with the greatest possibility of promoting wildlife require a forest management plan designed to foster the wildlife environment. Utilizing these plans effectively requires monetary resources. Broadening eligibility for the reforestation tax credit to include wildlife, conservation, and habitat expenditures will help provide these resources. Landowners will be encouraged to benefit the environment and wildlife on a voluntary basis, without subjecting themselves to excessive and onerous regulations. |
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Forest
Landowners Tax Council
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Copyright © 2000 Forest Landowners Tax Council All Rights Reserved |
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