Reforestation costs are generally capital expenditures. However, you can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. The remaining costs can be amortized over an 84-month period. For information about amortizing reforestation costs, see chapter 8.
Qualifying reforestation costs are the direct costs of planting or seeding for forestation or reforestation. Qualified timber property is property that contains trees in significant commercial quantities. See chapter 8 for more information on qualifying reforestation costs and qualified timber property.
If you elect to deduct qualified reforestation costs, create and maintain separate timber accounts for each qualified timber property and include all reforestation costs and the dates each was applied. Do not include this qualified timber property in any account (for example, depletion block) for which depletion is allowed.taxmap/pubs/p535-036.htm#en_us_publink1000144874
You elect to deduct qualifying reforestation costs by claiming the deduction on your timely filed income tax return (including extensions) for the tax year the expenses were paid or incurred. If Form T (Timber), Forest Activities Schedule, is required, complete Part IV of Form T. If Form T is not required, attach a statement containing the following information for each qualified timber property for which an election is being made.
- The unique stand identification numbers.
- The total number of acres reforested during the tax year.
- The nature of the reforestation treatments.
- The total amounts of qualified reforestation expenditures eligible to be amortized or deducted.
However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Clearly indicate the election on your amended return and write "Filed pursuant to section 301.9100-2." File the amended return at the same address you filed the original return. The election applies when computing taxable income for the current tax year and all subsequent years.
If you elected to deduct qualified timber costs on a federal income tax return filed before June 15, 2006, but did not include the above information, complete Part IV of Form T or the required statement and attach it to the first federal income tax return you file after June 14, 2006. If you have not elected to deduct qualified timber costs in a prior year you may be able to do so by filing Form 3115, Application for Change in Accounting Method. For more information, see Notice 2006-47 on page 892 of Internal Revenue Bulletin 2006-20. Internal Revenue Bulletin 2006-20 is available at www.irs.gov/pub/irs-irbs/irb06-20.pdf.
For additional information on reforestation costs, see chapter 8.taxmap/pubs/p535-036.htm#en_us_publink1000144875
This deduction may have to be recaptured as ordinary income under section 1245 when you sell or otherwise dispose of the property that would have received an addition to basis if you had not elected to deduct the expenditure. For more information on recapturing the deduction, see Depreciation and amortization under Gain Treated as Ordinary Income in Publication 544.