Tree Farmer - May/June 2011 - (Page 26)

By wang linda How to Manage Reforestation Expenditures allowed in the first and last year of the amortization period). So the total of reforestation deduction for your 2010 return is $10,600 ($600 amortization and $10,000 deduction). For 2011 through 2016, your amortization deduction will be $1,200 ($8,400/7 = $1,200). For 2017, your amortization deduction will be $600. It’s important to keep track of the deduction schedule during the amortization years. taxing issues 26 here we answer some of the questions we have been hearing lately regarding reforestation expenditures. Is reforestation cost tax deductible? After October 22, 2004, qualified reforestation costs are currently deductible up to the deduction limits set by the tax law: Specifically, you can elect to deduct up to $10,000 ($5,000 if married filing separately) of qualified reforestation cost for any qualified timber property in the tax year paid or incurred (Sec. 194(b)). The remaining costs are deductible across 84 months, through “amortization deduction” (Sec. 194(a)). I’m an individual taxpayer owning timber as incomeproducing property, not a business. Where do I report the reforestation costs? For income-producing timber property, the individuals use Form 4562, Part IV “Amortization” to claim the reforestation amortization. Then, combined with the reforestation deduction, report on the front page of Form 1040, under “Adjusted Gross Income” section (lines 23-35 of 2010 Form 1040). There is not a specific line for reforestation under this section; however, you may write “reforestation” and the amount on one of the dotted lines. So the reforestation deduction and amortization reduce your gross income to arrive at your Linda Wang is a national timber tax specialist with the U.S. Department of Agriculture’s Forest Service, based in Washington, D.C. What are qualified reforestation costs? Qualified reforestation expenditures means “direct costs incurred in connection with forestation or reforestation by planting or artificial or natural seeding, including costs: (i) for the preparation of the site; (ii) of seeds or seedlings; and (iii) for labor and tools, including depreciation of equipment such as tractors, trucks, tree planters, and similar machines used in planting or seeding” (Sec. 194(c)). Can you show me an example of how amortization deduction works? If you incurred $18,400 reforestation costs in 2010, your amortization deduction is figured as follows: for 2010, you can elect to take $600 ($8,400/14 = $600) as amortization deduction. The 1/14 comes from the amortization period of seven years or 84 months (with each year taking 1/7, but only half of the deductions are International Year of Forests, 2011 Tree Farmer MAY/JUNE 2011

Table of Contents for the Digital Edition of Tree Farmer - May/June 2011

Tree Farmer - May/June 2011
Contents
Cover Story
Select the Right Tree for Your Site
2011 North Central Regional Tree Farmers of the Year - Sponsored by Stihl, Inc.
Wildlife Matters
Taxing Issues
Woodland Security
Forestry 101: Conduct a Simple Timber Inventory

Tree Farmer - May/June 2011