Create a Favorable Tax Environment for Working Family Forests
Tax policy can serve as an incentive or a deterrent to family forest owners who wish to keep their land in the family and manage their forests sustainably. This is especially true when development pressures and land values escalate, putting forest land owners in a situation where they may be forced to sell in order to pay property, estate or other taxes. Forest land is a unique, risky, investment, often requiring significant upfront expenditures that can take 30-120 years to yield favorable returns.
Tax policy that does not reflect the nature of this long-term investment can lead to pre-mature timber harvesting, low reforestation rates, and conversion of forests to non-forest uses. Family forest owners are especially susceptible to these pressures, because they often lack the capital to invest in such long-term investments that see infrequent returns.
Estate taxes can profoundly impact family-owned forests. Currently, one-third of the 10 million family forest owners are above 65 years old. When a family is left with forests as part of an estate subject to the tax, the family may be forced to sell part or all of the property or pre-maturely or unsustainably harvest their timber, to cover the estate tax.
Tax credits and deductions that encourage family forest owners to produce societal benefits such as clean water and air and wildlife habitat are also important policy tools. Examples include tax credits for placing a conservation easement on a forest to protect it from development or tax deductions for management expenses incurred for conserving endangered species habitat.
To create a favorable tax environment for working family forests Congress should:
- Repeal or improve the estate tax, set to expire in 2010 and then revert back in 2011 to the 2001 tax rate of 55% with an exemption for estates valued under $1 million.
- Extend or make permanent, tax incentives for conservation easements on forests.
- Modify endangered species tax deductions in the 2008 Farm Bill to include family forest owners.
- Increase the allowable annual income tax deductions for reforestation and include reforestation expenses incurred for conservation purposes such as wildlife habitat.
- Modify “passive activity loss” rules to allow forest landowners to qualify for tax credits on annual income for forest management related expenses, regardless of “material participation” rules.
- Reinstate income averaging for family forest owners by including an exemption similar to farmers and fisherman.
- Maintain capital gains tax rates for long-term timber investments at 15% or lower.
- Modify casualty loss provisions to allow for deduction of either the tax basis or 50% of the loss, whichever is greater.
The American Forest Foundation is a nonprofit conservation organization that strives to ensure the continuation of America’s family forests. Each year we train 30,000 educators and help 90,000 landowners to manage forests for wildlife, habitat, recreation and sustainable products.
Policy approved by American Forest Foundation Board, to expire December 31, 2009
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