Wisconsin
Forest Tax Laws
There are two laws currently not open to
new enrollees
The Forest Crop Law, closed to new
enrollments, still has about 4,000 landowners with about 1.4 million acres
signed up. It allowed landowners to pay taxes on timber only after harvesting
or when the contract is terminated. Another program, the Woodland
Tax Law, allowed landowners who owned at least 10 adjoining acres,
to pay less taxes as well. Enrollment was closed in 1986.
The current program
The current program, Managed Forest Law, was
enacted in 1985 to combine the benefits of both the Forest Crop Law and
the Woodland Tax Law. Landowners have the option of choosing either a
25 or 50 year contract period, and enrollment is open to all private landowners
with 10 acres or more of woodland.
The program helps landowners with a management plan (must have one for enrollment) and lowers property taxes on their woodlands. Check with the Wisconsin DNR for current tax rates for the Managed Forest Law propgram Landowners interested in closing their lands to public access willbe taxed at a higher reate than those who keep their land open to the public for certain recreational activities.Taxes are deferred until harvest. Contact your DNR forester or the nearest DNR office for more information. You can also go to the DNR Web site: www.dnr.state.wi.us/org/land/forestry/ftax/managed.htm
Federal Income Taxes
The manner in which you decide to structure your timber activities, “for
profit” or “not for profit,” will have an effect on what
expenses are deductible and how losses are treated. It is essential to
keep good records—supported by receipts, travel logs, and other evidence
tying expenses directly to timber sale operations or cutting activities.
As the scope and scale of operations increase, a business journal and
appropriate record-keeping procedures are particularly useful.
These
practices will help ensure you will qualify for the best tax treatments
for your situation. Sale expenses include the costs of timber cruising
and marking, sale advertising, and log scaling. Fees paid to consulting
foresters, appraisers, attorneys, and other advisors directly related
to sale activities also may be included. Capital assets include tree farm
holdings that are purchased, inherited, received as a gift, or otherwise
acquired. Examples are land, merchantable timber, premerchantable timber,
buildings and equipment that have a useful life greater than one year,
plus capital acquisition costs. All capital expenditures must be recorded
for deductions as the assets are sold, worn out, become obsolete or are
used up.
The amounts recorded are known as your cost basis. In addition to actual out-of-pocket expenditures, basis also includes the value for probate purposes (inherited assets) and the donor’s basis (possibly adjusted for gift taxes) for gifted property. As additions or subtractions are made over time, the basis becomes the adjusted basis. Capital assets must be allocated to appropriate accounts on Schedule B. Acquisitions of Form T (Timber), Forest Activities Schedules. Reforestation expenses: a timber owner can claim a 10 percent reforestation tax credit for qualified reforestation expenditures.
The credit may be claimed in conjunction with reforestation amortization or independently. The reforestation credit is computed on line 3 Form 3468, Investment Credit, which must be attached to the tax return. Timber held as an investment rather than a business is a capital asset. Generally, profits from the sale of investment timber can be treated as a long-term capital gain. Long-term capital gain is advantageous because it lowers tax liability and self-employment taxes do not apply and capital losses can offset capital gains the same tax year without limit. Generally, the maximum long-term capital gains tax rate for timber is 20 percent; (for taxpayers in the lowest ordinary income tax bracket, the maximum long-term capital gains rate is 10 percent).
Help with Federal Timber Tax Law:
National Timber Tax Web site: www.timbertax.org
USDA Forest Service, Cooperative Forestry, Washington, DC: www.fs.fed.us/spf/coop
Forest Owner’s Guide to the Federal Income Tax-Agriculture Handbook
No. 708
Foresters with specialties in timber taxation—contact your county
or local forestry association.
Other Resources on General Forestry Issues:
Wisconsin Tree Farm Committee
(www.wisconsinforests.org),
Wisconsin Woodland Owners Association (www.wisconsinwoodlands.org),
Forest Stewardship Program
(http://www.foreststeward.org) and Wisconsin
Family Forests (www.wisconsinfamilyforests.org).