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Information provided on this site is for general guidance only and
is often simplified. Actual IRS procedures are complex, and taxpayers
should obtain professional assistance or use IRS sources for complete
information.
The
Economics of Forestry in the US
If timber prices follow historical trends real yields
over the next 10 years will probably be in the 8%-10%
range.
US
Forestry Taxation Although
forestry is not exempt from tax in the United
States, the effective level is not high and recognises
the long term nature of the business.
Calculation
of Taxable Income The
authority for deducting management and operating
expenses associated with an "investment"
is section 212 of the Internal Revenue Code.
Casualty
Losses The
tax treatment of losses to forestry assets resulting
from Acts of God such as hurricanes and fire is
generally considered one of the less satisfactory
aspects of US forestry taxation.
NB
Information given here about the economics and
taxation of forestry investments is strictly for
general guidance and does not constitute investment
or professional advice. Prospective or existing
investors are strongly advised to seek professional
advice on all aspects of investment in forestry
and on its taxation, which is complex.
The
Jobs & Growth Tax Relief Reconciliation Act
2003
The
Act impacted timber owners through a lower long-term
capital gains rate, lower marginal rates on ordinary
income and increased deductions for capital investments
by small businesses.
For
ordinary income the 10% and 15% rates stayed the
same. The 27% rate dropped to 25%, 30% to 28%,
35% to 33%, and 38.6% to 35%. These reductions
were effective retroactively to January 1, 2003.
The
maximum rate on net long-term capital gains dropped
from 20% to 15%, and the capital gains rate for
taxpayers in the 10% or 15% ordinary income brackets
fell from 10% to 5%. In 2008 this 5% rate falls
to 0%, but on January 1, 2009 the rate was set
to go back to the 20% and 10% rates because of
sunset provisions.
In
2005/2006 the Bush administration was trying very
hard to delete them, and prior to the dramatic
reversal of the balance of power in Congress after
the mid-term elections, which gave the Democratic
Party control over both chambers of Congress for
the first time since 1994, was somewhat successful
(for more on which, see below).
Under
certain circumstances the tax on gains on sales
and exchanges of property held for more than five
years was 18% instead of 20%, or 8% instead of
10%. These 5-year gains rates are eliminated.
Deductions
of capital losses against ordinary income were
limited to $3,000 per year for individual taxpayers.
Small businesses could deduct currently instead
of depreciating up to $25,000 worth of qualified
property placed in service during the year, the
Sec. 179 deduction. The amount decreased by $1
for each dollar of qualified expenses over $200,000,
the phase-out threshold. The amount
qualifying for deduction increased to $100,000
for years 2003, 2004 and 2005. These amounts were
indexed for inflation in 2004 and 2005. In addition,
the phase-out threshold increased to $400,000.
Dividends
paid by C corporations to stockholders remained
subject to double taxation. The corporation pays
tax at the corporate rate and then pays dividends
from after-tax income. These dividends are then
taxed on the recipients tax return at their
individual rate. Effective January 1, 2003 specific
rates applied to dividend income, 5 percent and
15 percent. Thus, long-term capital gains and
dividends will be taxed at the same rate.
The
reduced rates applied from January 1, 2003 to
December 31, 2008. A zero-percent rate will apply
to taxpayers in the 10- and 15-percent tax brackets
for 2008 only.
The
Economics of Forestry in the US
If timber prices follow historical trends real yields
over the next 10 years will probably be in the 8%-10%
range.
US
Forestry Taxation Although
forestry is not exempt from tax in the United
States, the effective level is not high and recognises
the long term nature of the business.
Calculation
of Taxable Income The
authority for deducting management and operating
expenses associated with an "investment"
is section 212 of the Internal Revenue Code.
Casualty
Losses The
tax treatment of losses to forestry assets resulting
from Acts of God such as hurricanes and fire is
generally considered one of the less satisfactory
aspects of US forestry taxation.
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