Federal Tax Reform Proposal Threatens Forestland Investments

Congress is more focused than they have been for ten years on tax reform, and the forestry community is squarely in their crosshairs. There is a new proposal afoot, originating from the U.S. House Committee on Ways & Means, that must not be taken lightly. It represents an array of revenue-generating cuts to forest landowner tax deductions that could be made to the Tax Code, at a time in our history when everyone is looking for ways to pay for new and expanded programs. 

 

The only positive note in this proposal is that there is time to counteract it. But even so, strategies carry some urgency. Here is a summary of what our landowners are facing.

• Traditional Tax Provisions: Eliminates capital gains treatment for timber revenue; curtails deductions for growing expenses for businesses with annual gross receipts over $10 million; and repeals the deduction for reforestation expenses.
• Structural Tax Provisions: Changes current law by eliminating timber as real property for purposes of the real estate investment trust (REIT) rules (IRC Sections 856 through 859); and excludes timber sale gains as qualifying income for a publicly traded master limited partnership.
• Other: Repeals IRC Section 1031 allowing tax deferral for in-kind exchanges of property; and repeal of special provisions for installment sales of "farm property," which the Code defines as including "woodland.

Opponents of this proposal are calling their U.S. Members of the House of Representatives (U.S. Capitol Switchboard: 202-224-3121) to simply say that "family forest owners oppose Ways & Means Committee Chairman Dave Camp's timber proposals in his draft tax reform legislation that was released on February 26."