How to report Expenses for Forestland that has not yet had a sale?

[bel21]

So purchased 22 acres of forest land in May 2022 that was and will continue to be in State property taxes deferral (except 1 acre) . It purchased it with intent to continue as forest land. It was harvested before we purchased it but replanted or fully cleaned up.

We plan to replant after slash burning (fall of 2022) treating for weeds in 2023, thinning out left over dead trees and replanting in 2024. We also will be doing road improvements into the property. We have a new Forest Management Plan with cost share costs. 

After researching on how to report the expenses for this still unsure. I want to get this set up correctly now.

I'd say we are probably investment class since the trees we plant will be harvested 30 + yrs. I know the road cost will be added to our land cost basis and that current our timber land basis is concerned $0.

What I've read is there is up to $10,000 each year that can be reported as expenses. How and where do I report this properly?

[DavidD66]

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