Reforestation Tax Incentives Under the American Jobs Creation Act of 2004

The American Jobs Creation Act of 2004 made significant changes in the reforestotion tax incentives available to private forest owners. Ow~iers con now deduct outright reforestation costs up to $10,000 per year for eoth qualifying timber property and amortize any odditionol amount over 8 tax years. To assess the financial benefit the new incentives provide to forest owners, the authors developed spreadsheets that calculate after-tax Bare Land Value (BLVI for a representative southern pine management plan under three tax situations: no reforestution incentives, the incentives under previous low, ond the incentives under the current law. They found that compared to no tax incentive, the current low chiefly benefits owners with high non-timber income, increasing BLV by an amount equivalent to a reforestation cost share of roughly 25 to 30% as opposed to 5 to 15% for owners with low or median income. Compared to previous law, the current law chiefly benefits owners of large forest holdings, increasing BLV by an amount equivalent to a reforestation cost shore of roughly 10 to 20%. For owners of smoll forest holdings, however, BLV decreased by an amount equivalent to a 5 to 10% increase in reforestotion costs. These findings are significant as Congress likely intended that the new incentives continue to benefit primarly "smoll woodland owners" with modest incomes and forest holdings. T he American Jobs Creation Act of 2004 (PL 108-357) made significant changes in the reforestation tax incentives available to private forest owners. Under the previous law (PL 96-451) owners could take a 10% tax credit on and amortize (write oft) reforestation costs up to $lO,OOO/year over 8 tax years. [I] Beginning on Oct. 23,2004, the day after President Bush signed the Act into law, owners could deduct outright reforestation costs up to $10,0001year for each qualified timber property and amortize any additional amount, again, over 8 tax years. The reforestation tax credit is eliminated (RIA 2004). With its $10,000 cap on both the tax credic and the amortization provisions, thc ~rc.vio~:s law was intended to benefit prinlnril}. "srnalI xcoodland o\vners." In contrast, the current law benefirs owners of forest holdings of all sizes, large and small. With irs large, up-front deduction, the current law is comparable wich a reforesration cost share. The size of the cost share it is equivalent to, however, varies with the size of the forest holding and amount of the owner's non-timber income. The approach presented …