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Recouping Reforestation Costs

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November 29, 2019

Announcer: Farm and Family is a production of the Mississippi State University Extension Service.

Amy Myers: Today we're talking about recouping reforestation costs. Hello, I'm Amy Myers and welcome to Farm and Family.

Today we're speaking with Dr. John Kushla, Mississippi State University Extension Forestry Specialist.

How can forest landowners recover their costs for reforestation?

John Kushla: There are tax benefits to forest landowners that enable them to regain some or all of their expenses when establishing a new forest. This is available to landowners whether reforesting land after a timber harvest, or planting land not previously in forest. Tax breaks are available on federal income tax as well as Mississippi income tax.

Amy Myers: So what is meant by or included in reforestation?

John Kushla: Typically, pine timber is clearcut harvested, and then replanted. Under these circumstances, reforestation costs would include site preparation, purchasing tree seedlings, tree planting, and herbaceous weed control within one year of planting. These are also the same costs eligible if a landowner wished to plant open land not previously in forest. For natural regeneration, reforestation costs are a little different since the next forest is established by trees themselves. Costs here would include pre-harvest site preparation, such as release or prescribed fire. Also included would be the cost of the tree harvest.  This is important since harvesting is done in stages, and final crop removal only occurs after advanced regeneration is established.  This may take several years.

Amy Myers: Are the tax breaks for reforestation the same for federal as well as the state?

John Kushla: No.  The federal tax code allows for a deduction on income before calculating tax. So, the federal government’s approach saves landowners the marginal tax rate for the costs of reforestation. Under the federal tax code, landowners may deduct up to $10,000 for the first year in which reforestation occurs. The $10,000 limit is per qualified timber property.  If a landowner owns several tracts, and has a different management plan for each, then each tract could be treated separately. If the reforestation costs exceed $10,000, the federal tax code allows landowners to recover the remainder of their reforestation expenses over the next eight years.

Amy Myers: Is this the same way landowners recover reforestation costs on Mississippi taxes?

John Kushla: Again, the answer is no.  To recover reforestation expenses, Mississippi differs substantially from the federal tax code. The Mississippi Reforestation Tax Credit allows a dollar for dollar reduction in the landowner’s state tax liability. The MRTC allows recovery of up to half the average reforestation costs. The Mississippi Forestry Commission establishes the average acceptable costs for reforestation activities. A credit up to $10,000 per tax year is allowed, with a life-time allowance of $75,000 per taxpayer. If reforestation costs exceed $10,000, the landowner may carry over the tax credit to each future tax year, at $10,000 per year, until the lifetime limit is reached.

Amy Myers: How do forest landowners claim these reforestation tax breaks?

John Kushla: A landowner may claim the federal deduction for reforestation costs starting the tax year in which they occur. However, to claim the Mississippi Reforestation Tax Credit, a landowner must have a written reforestation plan by a Mississippi registered forester. The registered forester must verify the reforestation by submitting Mississippi tax form 80-135 with the landowner’s tax return.

Amy Myers: So, give me a summary of what we’ve talked about today.

John Kushla: Both the federal Internal Revenue Service and the Mississippi Department of Revenue allow forest landowners to recover reforestation costs. The federal tax code allows for a deduction of reforestation expenses, whereas the Mississippi tax code has a reforestation tax credit. For further questions contact your local Extension Office.

Amy Myers: Today, we’ve been speaking with Mississippi State University Extension Forestry Specialist John Kushla. I’m Amy Myers, and this has been Farm and Family. Have a great day.

Announcer: Farm and Family is a production of the Mississippi State University Extension Service.

Department: Forestry

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