Nonindustrial private forest owner use of federal income tax provisions

Abstract

Seven provisions of the federal income tax provide incentives for nonindustrial private forest (NIPF) owners to follow sound management and reforestation practices. Four provisions - long-term capital gain treatment of qualifying income, annual deduction of management costs, depreciation and the section 179 deduction, and deductions for casualty losses or other involuntary conversions - are available to taxpayers in general. The remaining provisions - the reforestation tax credit, amortization of reforestation expenses, and the ability to exclude qualifying reforestation cost-share payments from gross income - are specifically for forest owners. NIPF owners in South Carolina were surveyed by mail to determine whether they were aware ofthese tax provisions, whether they had made use ofthem, and their reasons for using or not using each one. Information also was collected on the owners' demographic characteristics, to test for differences between users and non-users ofthe provisions. Owner awareness and use was highest for long-term capital gain treatment of income and annual deduction of management costs. Some 78 percent of owners were aware ofthe two provisions, and 85 percent ofowners who were aware of the provisions used them. Owner awareness was lowest for the ability to exclude qualifying reforestation cost-share payments, at 42 percent; owner use was lowest for loss deductions, at 23 percent. Membership in a forest owner organization, having a written forest management plan, and a high level of household income were associated with owner knowledge of beneficial tax provisions. No demographic characteristics were associated across-the-board with owner use of provisions.