You can choose to amortize a limited amount of reforestation costs
for qualified timber property over a period of 84 months.
Reforestation costs are the direct costs of planting or seeding for
forestation or reforestation.
The choice to amortize reforestation costs incurred by a
partnership, S corporation, or estate must be made by the partnership,
corporation, or estate. A partner, shareholder, or beneficiary cannot
make that choice.
A trust cannot choose to amortize reforestation costs and cannot
deduct its share of any amortizable reforestation costs of a
partnership, S corporation, or estate.
Qualifying costs.
Qualifying costs include only those costs you must capitalize and
include in the adjusted basis of the property. They include costs for
the following items.
- Site preparation.
- Seeds or seedlings.
- Labor.
- Tools.
- Depreciation on equipment used in planting and
seeding.
Costs you can deduct currently are not qualifying costs.
If the government reimburses you for reforestation costs under a
cost-sharing program, you can amortize these costs only if you include
the reimbursement in your income.
Qualified timber property.
Qualified timber property is property that contains trees in
significant commercial quantities. It can be a woodlot or other site
that you own or lease. The property qualifies only if it meets all the
following requirements.
- It is located in the United States.
- It is held for the growing and cutting of timber you will
either use in, or sell for use in, the commercial production of timber
products.
- It consists of at least one acre planted with tree seedlings
in the manner normally used in forestation or reforestation.
Qualified timber property does not include property on which you
have planted shelter belts or ornamental trees, such as Christmas
trees.
Amortization period.
The 84-month amortization period starts on the first day of the
first month of the second half of the tax year you incur the costs
(July 1 for a calendar year taxpayer), regardless of the month you
actually incur the costs. You can claim amortization deductions for no
more than 6 months of the first and last (eighth) tax years of the
period.
Example.
Last year (a full 12-month tax year), John Jones incurred
qualifying reforestation costs of $8,400. His monthly amortization
deduction ($100) is figured by dividing $8,400 by 84 months. Since it
was the first year of the 84-month period, he can deduct only $600
($100 × 6 months).
Annual limit.
Each year, you can choose to amortize up to $10,000 ($5,000 if you
are married filing separately) of qualifying costs you pay or incur
during the tax year. You cannot carry over or carry back qualifying
costs over the annual limit. The annual limit applies to qualifying
costs for all your qualified timber property.
If your qualifying costs are more than $10,000 for more than one
piece of timber property, you can divide the annual limit among any of
the properties in any manner you wish.
Example.
You incurred $10,000 of qualifying costs on each of four qualified
timber properties last year. You can allocate $2,500 to each property,
$5,000 to two properties, or the entire $10,000 to any one property,
or you can divide the $10,000 among some or all of the properties in
any other manner.
Partnerships and S corporations.
A partnership or S corporation can choose to amortize up to $10,000
of qualifying reforestation costs each tax year. A partner's or
shareholder's share of these amortizable costs is figured under the
general rules for allocating items of income, loss, deductions, etc.,
of a partnership or S corporation.
The partner or shareholder is also subject to the annual limit of
$10,000 ($5,000 if married filing separately) on qualifying costs.
This limit applies to all the partner's or shareholder's qualifying
costs, regardless of their source.
Example.
You are single and a partner in two partnerships, both of which
incurred qualifying reforestation costs of more than $10,000 for the
year. Each partnership chose to amortize these costs up to the $10,000
annual limit. Your share of that $10,000 is $6,000 for one partnership
and $8,000 for the other. Although your qualifying costs total
$14,000, the amount you can amortize is limited to $10,000.
Estates.
Estates can choose to amortize up to $10,000 of qualifying
reforestation costs each tax year. These amortizable costs are divided
between the estate and the income beneficiary based on the income of
the estate allocable to each. The amortizable cost allocated to the
beneficiary is subject to the beneficiary's annual limit.
Maximum annual amortization deduction.
The maximum annual amortization deduction for costs incurred in any
tax year is $1,428.57 ($10,000 × 7), or $714.29 ($5,000
× 7) if married filing separately. The maximum deduction in the
first and last tax year of the 84-month amortization period is one
half of the maximum annual deduction, or $714.29 ($357.15 if married
filing separately).
Life tenant and remainderman.
If one person holds the property for life with the remainder going
to another person, the life tenant is entitled to the full
amortization (up to the annual limit) for reforestation costs incurred
by the life tenant. Any remainder interest in the property is ignored
for amortization purposes.
Recapture.
If you dispose of qualified timber property within 10 years after
the tax year you incur qualifying reforestation expenses, report any
gain as ordinary income up to the amortization you took. See chapter 3
of Publication 544
for more information.
Investment credit.
Amortizable reforestation costs qualify for the investment credit,
whether or not they are amortized. See the instructions for Form 3468
for information on the investment credit.
How to make the choice.
To choose to amortize qualifying reforestation costs, enter your
deduction in Part VI of Form 4562 and attach a statement that contains
the following information.
- A description of the costs and the dates you incurred
them.
- A description of the type of timber being grown and the
purpose for which it is grown.
Attach a separate statement for each property for which you
amortize reforestation costs.
Generally, you must make the choice on a timely filed return
(including extensions) for the tax year in which you incurred the
costs. However, if you timely filed your return for the year without
making the choice, you can still make the choice by filing an amended
return within 6 months of the due date of the return (excluding
extensions). Attach Form 4562 and the statement to the amended return
and write "Filed pursuant to section 301.9100-2" on Form
4562. File the amended return at the same address you filed the
original return.
Where to report.
The following chart shows where to report your amortization
deduction for reforestation costs after you enter it on Form 4562.
| If you file . . . |
The deduction goes on . . . |
| Schedule C
(Form 1040) |
Line 27 |
| Schedule F
(Form 1040) |
Line 34 |
| Form 1120 |
Line 26 |
| Form 1120-A |
Line 22 |
| Form 1120S |
Schedules K and K-1 |
| Form 1065 |
Schedules K and K-1 |
| None of the above |
Line 32 of Form 1040
(identify as "RFST") |
You cannot report your amortization deduction on Schedule C-EZ
(Form 1040).
Partner or shareholder.
If you are a partner in a partnership or a shareholder in an S
corporation, see the instructions for Schedule K-1 (Form 1065 or Form
1120S) for information on where to report any allocated amortization
for reforestation costs. However, if you have other reforestation
costs you are amortizing, this deduction may be limited. See
Annual limit, earlier.
Estate.
If the estate does not file Schedule C or F for the activity in
which the reforestation costs were incurred, include the amortization
deduction on line 15a of Form 1041.
Revoking the choice.
You must get IRS approval to revoke your choice to amortize
reforestation costs. Your application to revoke the choice must
include your name, address, the years for which your choice was in
effect, and your reason for revoking it. You, or your duly authorized
representative, must sign the application and file it at least 90 days
before the due date (without extensions) for filing your income tax
return for the first tax year for which your choice is to end.
 |
Send the application to:
Commissioner of Internal Revenue
Washington, DC 20224 |
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