PRIA, Government Policy, Made Personal

Summary

You can choose to deduct money spent to replant or care for trees on commercial timber land. If you make the required election, you may either spread the undeducted reforestation costs over 84 months or treat qualifying replanting costs as current expenses and deduct them now. The 84-month spreading starts on the first day of the first month of the second half of the tax year when you got the cost basis. Each month’s amortization is the remaining amortizable cost at the end of that month divided by the months left in the 84-month period. You may deduct up to $10,000 of reforestation expenses for each qualified timber property each year ($5,000 if filing a separate return as a married person, and $0 for trusts). Related companies in a controlled group count as one taxpayer and the tax official will divide the $10,000 limit among them. The same limit applies to a partnership and to its partners, and to an S corporation and its shareholders. Definitions: qualified timber property = a U.S. woodlot held to grow and sell timber; amortizable basis = the part of cost left to be amortized; reforestation expenditures = costs like site prep, seeds or seedlings, labor, tools, and equipment use. Government cost-sharing payments are excluded unless you reported them as income. Trusts and estates must split deductions between beneficiaries and the fiduciary. You cannot deduct the same cost twice, and if someone holds the land for life, the life tenant gets the deduction as if they owned it.

Title 26, §194

Internal Revenue Code, Source: USLM XML via OLRC

(a)Allowance of deduction

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)Treatment as expenses

(1)Election to treat certain reforestation expenditures as expenses

(A)In general

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)Dollar limitation

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)Allocation of dollar limit

(A)Controlled group

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.

For purposes of the preceding sentence, the term “controlled group” has the meaning assigned to it by section 1563(a), except that the phrase “more than 50 percent” shall be substituted for the phrase “at least 80 percent” each place it appears in section 1563(a)(1).

(B)Partnerships and S corporations

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)Definitions and special rule

For purposes of this section

(1) Qualified timber property

(2)Amortizable basis

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)Reforestation expenditures

(A)In general

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)Cost-sharing programs

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)Treatment of trusts and estates

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)Application with other deductions

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)Life tenant and remainderman

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.

Effective Date

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

Effective Date

Transitional Rules note under section 141 of this title.

Effective Date

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

Effective Date

note under section 1361 of this title.

Effective Date

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

Notes & Related Subsidiaries

Editorial Notes

Prior Provisions

Amendments

Regulations

Statutory Notes and Related Subsidiaries

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Amendments

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Citations & Metadata