December 22, 2003

IRS Offers Tree Planting Tax Incentive
by James L. Cummins

In a few months, winter will be upon us. Many landowners throughout Mississippi will be planting trees on their property - from upland and bottomland hardwoods to mixed stands of hardwoods and pine to longleaf pine.

Most have hopes of eventually enjoying the many benefits of their efforts. Unfortunately, trees are slow to grow and their benefits are not realized in a short period of time. There is one benefit though, that a landowner can receive within a year of planting. The Internal Revenue Service (IRS) is willing to give landowners a 10% investment tax credit for planting trees. Let's look at what this could mean.

Don't feel bad if you were not familiar with this tax break, there are many Mississippi farmers and landowners that are unaware of this lucrative benefit for planting trees. There are very few tax credits remaining on the books with the IRS. This law though, has been a part of the tax code since 1980. The law provides a 10% tax credit on qualified reforestation expenditures. The credit is a direct deduction from the taxes you owe. You can also elect to amortize (deduct) up to 95% of qualified reforestation expenditures over a seven calendar year period. The amortization may be done in conjunction with the 10% tax credit or independently of it.

One may wonder what qualifies as expenditures when you are planting trees. According to the tax code, reforestation expenses refer to direct costs paid for establishing the stand of trees. They would include the costs of site preparation; seeds or seedlings; and labor and tools, including depreciation on equipment. Work completed to encourage natural regeneration is also eligible.

Let's look at an example of what this might mean the next time you plant a few acres of trees. If you mowed the field, sprayed the rows to be planted with herbicide, purchased the trees, planted the trees and then placed tree shelters on one-half of the trees, you can easily spend $2,500 on a three acre planting if all of the above steps are followed. Thus, with the 10% investment tax credit, you could directly deduct $250 from the amount you owe the IRS for that year. You can also then amortize 95% of the $2,500 over a seven-year period. Amortization deductions are subtracted from your gross income. This means that they can be subtracted even if you do not itemize.

This little known tax benefit is easy to use and should be quite an incentive for a landowner to plant trees. Think about it, when does the IRS ever give you the opportunity to reduce your tax liability for something as easy as planting a tree.

Why not consider planting a few acres of trees using the Forest Land Enhancement Program, Wildlife Habitat Incentives Program, Conservation Reserve Program or the various other programs out there and also take advantage of the reforestation investment tax credit while we still have it.

James L. Cummins is Executive Director of the Mississippi Fish and Wildlife Foundation in Stoneville, Mississippi. Known as "Wildlife Mississippi," the Foundation is a non-profit, conservation organization founded to conserve, restore and enhance fish, wildlife and plant resources throughout Mississippi