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.

Establishing The 'Basis' Of Forestry Assets
For purchased assets, the basis is acquisition or establishment cost.

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 recipient’s 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.

BACK TO TOP

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.

Establishing The 'Basis' Of Forestry Assets
For purchased assets, the basis is acquisition or establishment cost.