§194 — Title 26 Internal Revenue Code | U.S. Code

Summary

You can deduct costs for replanting trees in two ways. One way is to spread (amortize) the part of the property cost that comes from reforestation over 84 months. Each month you take a deduction equal to the remaining amortizable amount divided by the number of months left in the 84-month period, and you figure the remaining amount before taking that month's deduction. The 84-month period starts on the first day of the seventh month of the tax year when you acquire that amortizable basis. Or you can treat reforestation costs you pay or incur in a year as an ordinary expense and deduct them that year, but the annual limit per qualified timber property is $10,000 ($5,000 if filing a separate return as a married person, and $0 for a trust). Controlled groups count as one taxpayer and the Treasury will split the limit among group members. The limit also applies to partnerships and to each partner, and similarly to S corporations and their shareholders. Definitions and rules in one line each: qualified timber property = a U.S. woodlot or site held to grow and sell timber; amortizable basis = the part of the property cost from reforestation not deducted as current expense; reforestation expenditures = direct planting or seeding costs like site prep, seeds or seedlings, labor, tools, and equipment depreciation; government reimbursements don’t count unless you included them in income; trusts/estates must split amounts between beneficiaries and fiduciary by rules; no other tax deduction is allowed for amounts deducted here; if property is held for life with a remainder, the life tenant gets the deduction as if they owned it.

Title 26, §194

Internal Revenue Code — Source: USLM XML via OLRC

(a)In the case of any qualified timber property with respect to which the taxpayer has made (in accordance with regulations prescribed by the Secretary) an election under this subsection, the taxpayer shall be entitled to a deduction with respect to the amortization of the amortizable basis of qualified timber property based on a period of 84 months. Such amortization deduction shall be an amount, with respect to each month of such period within the taxable year, equal to the amortizable basis at the end of such month divided by the number of months (including the month for which the deduction is computed) remaining in the period. Such amortizable basis at the end of the month shall be computed without regard to the amortization deduction for such month. The 84-month period shall begin on the first day of the first month of the second half of the taxable year in which the amortizable basis is acquired.

(b)(1)(A)In the case of any qualified timber property with respect to which the taxpayer has made (in accordance with regulations prescribed by the Secretary) an election under this subsection, the taxpayer shall treat reforestation expenditures which are paid or incurred during the taxable year with respect to such property as an expense which is not chargeable to capital account. The reforestation expenditures so treated shall be allowed as a deduction.

(B)The aggregate amount of reforestation expenditures which may be taken into account under subparagraph (A) with respect to each qualified timber property for any taxable year shall not exceed—

(i)except as provided in clause (ii) or (iii), $10,000,

(ii)in the case of a separate return by a married individual (as defined in section 7703), $5,000, and

(iii)in the case of a trust, zero.

(2)(A)For purposes of applying the dollar limitation under paragraph (1)(B)—

(i)all component members of a controlled group shall be treated as one taxpayer, and

(ii)the Secretary shall, under regulations prescribed by him, apportion such dollar limitation among the component members of such controlled group.

(B)In the case of a partnership, the dollar limitation contained in paragraph (1)(B) shall apply with respect to the partnership and with respect to each partner. A similar rule shall apply in the case of an S corporation and its shareholders.

(c)For purposes of this section—

(1)The term “qualified timber property” means a woodlot or other site located in the United States which will contain trees in significant commercial quantities and which is held by the taxpayer for the planting, cultivating, caring for, and cutting of trees for sale or use in the commercial production of timber products.

(2)The term “amortizable basis” means that portion of the basis of the qualified timber property attributable to reforestation expenditures which have not been taken into account under subsection (b).

(3)(A)The term “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.

(B)Reforestation expenditures shall not include any expenditures for which the taxpayer has been reimbursed under any governmental reforestation cost-sharing program unless the amounts reimbursed have been included in the gross income of the taxpayer.

(4)The aggregate amount of reforestation expenditures incurred by any trust or estate shall be apportioned between the income beneficiaries and the fiduciary under regulations prescribed by the Secretary. Any amount so apportioned to a beneficiary shall be taken into account as expenditures incurred by such beneficiary in applying this section to such beneficiary.

(5)No deduction shall be allowed under any other provision of this chapter with respect to any expenditure with respect to which a deduction is allowed or allowable under this section to the taxpayer.

(d)In the case of property held by one person for life with remainder to another person, the deduction under this section shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant.

Notes & Related Subsidiaries

Editorial Notes

Prior Provisions

A prior section 194 was renumbered section 194A of this title.

Amendments

2005—Subsec. (b)(1)(B). Pub. L. 109–135, § 403(i)(1)(A), reenacted heading without change and amended text generally. Prior to amendment, text read as follows: “The aggregate amount of reforestation expenditures which may be taken into account under subparagraph (A) with respect to each qualified timber property for any taxable year shall not exceed $10,000 ($5,000 in the case of a separate return by a married individual (as defined in section 7703)).” Subsec. (c)(4). Pub. L. 109–135, § 403(i)(1)(B), reenacted heading without change and amended text generally. Prior to amendment, text read as follows: “(A) In general.—Except as provided in subparagraph (B), this section shall not apply to trusts and estates. “(B) Amortization deduction allowed to estates.—The benefit of the deduction for amortization provided by subsection (a) shall be allowed to estates in the same manner as in the case of an individual. The allowable deduction shall be apportioned between the income beneficiary and the fiduciary under

Regulations

prescribed by the Secretary. Any amount so apportioned to a beneficiary shall be taken into account for purposes of determining the amount allowable as a deduction under subsection (a) to such beneficiary.” 2004—Pub. L. 108–357, § 322(c)(4), substituted “Treatment” for “Amortization” in section catchline. Subsec. (b). Pub. L. 108–357, § 322(a), substituted “Treatment as expenses” for “Limitations” in heading. Subsec. (b)(1). Pub. L. 108–357, § 322(a), amended heading and text of par. (1) generally. Prior to amendment, text read as follows: “The aggregate amount of amortizable basis acquired during the taxable year which may be taken into account under subsection (a) for such taxable year shall not exceed $10,000 ($5,000 in the case of a separate return by a married individual (as defined in section 7703)).” Subsec. (b)(2). Pub. L. 108–357, § 322(c)(2), substituted “paragraph (1)(B)” for “paragraph (1)” in introductory provisions of subpar. (A) and in subpar. (B). Subsec. (b)(3), (4). Pub. L. 108–357, § 322(c)(1), struck out pars. (3) and (4) which related to inapplicability of section to trusts and applicability of section to estates, respectively. Subsec. (c)(2). Pub. L. 108–357, § 322(b), inserted “which have not been taken into account under subsection (b)” after “expenditures”. Subsec. (c)(4), (5). Pub. L. 108–357, § 322(c)(3), added pars. (4) and (5) and struck out former par. (4) which related to basis allocation if the amount of the amortizable basis acquired during the taxable year of all qualified timber property with respect to which the taxpayer had made an election under subsec. (a) exceeded the amount of the limitation under subsec. (b)(1). 1986—Subsec. (b)(1). Pub. L. 99–514 substituted “section 7703” for “section 143”. 1982—Subsec. (b)(2)(B). Pub. L. 97–354 substituted “Partnerships and S corporations” for “Partnerships” in heading, and inserted “A similar rule shall apply in the case of an S corporation and its shareholders.”

Statutory Notes and Related Subsidiaries

Effective Date

of 2005 Amendment

Amendments

by Pub. L. 109–135 effective as if included in the provisions of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which they relate, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title.

Effective Date

of 2004 AmendmentAmendment by Pub. L. 108–357 applicable with respect to expenditures paid or incurred after Oct. 22, 2004, see section 322(e) of Pub. L. 108–357, set out as a note under section 46 of this title.

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of 1986 AmendmentAmendment by Pub. L. 99–514 applicable to bonds issued after Aug. 15, 1986, except as otherwise provided, see sections 1311 to 1318 of Pub. L. 99–514, set out as an

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Transitional Rules note under section 141 of this title.

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of 1982 AmendmentAmendment by Pub. L. 97–354 applicable to taxable years beginning after Dec. 31, 1982, see section 6(a) of Pub. L. 97–354, set out as an

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note under section 1361 of this title.

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Pub. L. 96–451, title III, § 301(d), Oct. 14, 1980, 94 Stat. 1991, provided that: “The

Amendments

made by this section [enacting this section and amending section 62 and 1245 of this title] shall apply with respect to additions to capital account made after December 31, 1979.”

§194 Treatment of Reforestation Expenditures

Summary

Title 26, §194

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