Reforestation costs are generally capital expenditures. However, you can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. The remaining costs can be amortized over an 84-month period.
How you treat your reforestation expenses depends on whether your are treating the timber property as a business or an investment.
If the forest property is an investment:
- The taxpayer may capitalize the amount, or
- The taxpayer may elect the Section 194 deduction by claiming it on line 24 of Schedule 1, Form 1040
• Include in the total on line 22 and Identify as “RFST.”. To determine what you can deduct, see pages 27 & 34 of IRS Publication 535
If the timber property is a business:
The taxpayer may capitalize the expense or the taxpayer may claim the §194 deduction on Form T or by attaching a separate statement if Form T is not required.
To make the §194 deduction election:
• If you are filing Form T (Timber), Forest Activities Schedule, also complete Form T (Timber), Part IV
• If Form T is not required, attach a statement containing the following information for each qualified timber property for which an election is being made:
– The unique stand identification numbers
– The total number of acres reforested during the tax year
– The nature of the reforestation treatments
– The total amounts of qualified reforestation expenditures eligible to be amortized or deducted
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