(RE)FORESTATION DEDUCTION AND

Transcription

1 (RE)FORESTATION DEDUCTION AND AMORTIZATION 3/15/2010 W.L. Hoover 1

2 Tax Treatment t Capitalize Deduct up to $10,000 per year for each Qualified Timber Property (QTP) Amortize over 8 years Note -Tax credit eliminated 3/15/2010 W.L. Hoover 2

3 Qualifications Must be for commercial timber production planting, cultivation and management of timber as an investment or business, not personal use Commercial means grown for eventual sale to to commercial processor, or use in your own trade or business 3/15/2010 W.L. Hoover 3

4 Not Qualifying Buffer plantings except for component intended for commercial timber Christmas and ornamental tree plantings Wind break and other conservation plantings 3/15/2010 W.L. Hoover 4

5 Qualifications 1 acre minimum planting site Property located in U.S. 3/15/2010 W.L. Hoover 5

6 Type of Taxpayer Trusts Don t qualify for $10,000 expense per QTP Do qualify for amortization of entire expenditure Estates Qualify for both expense and amortization 3/15/2010 W.L. Hoover 6

7 Qualifying i Expenditures Reforestation and afforestation Artificial regeneration Seedling Direct seeding Natural regeneration Fencing to reduce browsing Repellents 3/15/2010 W.L. Hoover 7

8 Qualifying i Expenditures All stand establishment costs Site preparation Seeds or seedlings Paid labor (not value of owner s labor Depreciation on tools and equipment used in project Herbicide and fertilizer Any others required to establish the stand 3/15/2010 W.L. Hoover 8

9 Qualifying Expenditures Includes all costs until stand is established Stand established when - Number of individual stems sufficient to adequately stock the site with desired species are capable of surviving without further effort to reduce competition from other vegetation. 3/15/2010 W.L. Hoover 9

10 Qualified Timber Property (QTP) No definition provided by legislation nor IRS ruling No ruling expected Definition will likely come from court cases Broad definition each reforestation project is a separate QTP Narrow definition only 1 QTP per taxpayer per year Base determination on each taxpayer s specific situation 3/15/2010 W.L. Hoover 10

11 How to Handle Cost- Share Payments If you include the payments in your income Total expenditure qualifies Out-of-pocket portion, and Cost-shared portion If you qualified to excluded all or a portion from income Excluded amount doesn t qualify 3/15/2010 W.L. Hoover 11

12 Limit on up to $10,000 Deduction per QTP Applies to, Individual taxpayer, Married filing jointly Married filing separately $5,000 each Business entity Partnership, Joint ownership Corporation Corporations filing consolidated return 3/15/2010 W.L. Hoover 12

13 Reporting Deduction Business Expense on appropriate business tax form Schedule F or C 1065, 1120, etc. Investment expense Adjustment to gross income on Form 1040 Not a miscellaneous itemized deduction 3/15/2010 W.L. Hoover 13

14 Amortization Schedule for $15,000 Year made 1/14 th $ 1,071 2 nd year 1/7 th 2,143 3 rd year 1/7 th 2,143 4 th year 1/7 th ,143 5 th year 1/7 th 2,143 6 th year 1/7 th 2,143 7 th year 1/7 th 2,143 8 th year 1/14 th 1,071 Total 1/1 $15,000 3/15/2010 W.L. Hoover 14

15 Sec. 194 Amortization Deduction Total deduction for a given year is sum of current year s and prior years schedule amounts 3/15/2010 W.L. Hoover 15

16 Sec. 194 Amortization Deduction File with your return a Form 3P giving details of project and expenditures File each year you make qualified expenditures Not in a year you only claim a deduction/adjustment from prior year s amortization schedule 3/15/2010 W.L. Hoover 16

17 Sec. 194 Amort. Deduction File 4562 Depreciation and Amortization form Report in Part VI Amortization Line 42 for current year s deduction Line 43 for amount from prior years amortization schedules 3/15/2010 W.L. Hoover 17

18 Sec. 194 Amortization Deduction Transfer from Form 4562 to, Business - other expense on Schedule C, F, 1120, 1065, etc. Investment - adjustment to gross income on Form 1040 [ (c) & T(12)] 621T(12)] 3/15/2010 W.L. Hoover 18

19 Complete Form T Part IV Complete for your records, but don t file with IRS Include copy of 3P attachment in your records Remember to amortize amounts over $10,000 3/15/2010 W.L. Hoover 19