When and How Can I Deduct My Expenses?

All woodland owners take on costs—whether in time, money, or both—to keep their woods and make them healthy. But not all woodland owners can recover those costs the same way, or to the same extent, when tax time rolls around.

You can deduct your forest management expenses—both capital and operating—if you’re growing timber for profit, even if there’s no timber income in the year you claim the expenses. You must be growing timber for profit in order to deduct operating expenditures.

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If you’re not growing timber as part of an investment or business, your forest management is considered a hobby. In that case, you may not deduct expenses that exceed your income from your hobby.

When it comes time to file your taxes, where and how you report your expenses depends on your specific situation—how your business is organized, what it involves, and how active your role in it is. If you take an active, time-consuming role, you’re considered to “materially participate” (in tax speak) in your business. If you don’t spend much time involved in your business, you’re considered to “passively participate,” and you can only claim deductions to the extent of the income your passive activities bring you.

If you’re materially participating in managing your forest for profit and your timber business is part of a farming operation, you would use the tax form “Schedule F” for your deductions.

If you’re actively engaged in growing timber for profit but don’t have a farming operation, you would file a “Schedule C,” which is used to report profit or loss from a business.

If you’re running your woodland-based business as part of a partnership, corporation, LLC or other business type, you may need to file different or additional forms.

In that case, and whenever you’re concerned about how to report your expenses, it may be useful to work with a tax professional or accountant. He or she can help you figure out what’s required.