How Can I Make The Most of My Resforestation Tax Benefits?

If you’re willing and able to take full advantage of the reforestation tax incentive, there are some strategies that can help you make the most of your benefit. 

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First, consider staggering your reforestation activities to favor you financially. For example, if you prepare your land for reforestation in the fall, but then plant your seedlings in the spring, take note that those activities straddle two different tax years. That means you can take two $10,000 deductions and two amortizations to cover the activities – one deduction and one amortization for each tax year.

Let’s say you spend $15,000 on site preparation in 2015, and then plant your trees in March of 2016. You can deduct $10,000 of your site preparation costs on your 2015 tax return, and amortize the remaining $5,000. Then, on your 2016 return, you can take a $10,000 deduction for the tree planting along with the second amortization deduction from the extra $5,000 for site preparation.

Another way to maximize your benefit is to be thoughtful about whether and when you claim it. IRS rules require a 10-year holding period after taking the deduction. If you sell land or timber from the property on which you used the reforestation deduction, you may have to “pay back” some of your tax savings by reporting them as ordinary income.

If you choose to claim your benefit and then change your mind, consider that your choice can only be revoked with IRS approval and the IRS rarely grants that approval. But if you don’t claim your benefits and then change your mind, you have six months after the tax return due date to amend the return and claim your reforestation incentive.

If you find the rules around reforestation benefits confusing, you’re not alone—and you’re not without help. A tax professional can help you make sense of your options.