October 5, 2009 Reforestation Tax Credit for Tree Farmers

What is the Federal Reforestation Credit?

The federal tax credit for reforestation is one of the best tax breaks available to landowners.  It allows qualified property-owners to claim a 10-percent reforestation tax credit up to $10,000 for expenses associated with planting trees.  In addition, forestation costs up to this limit may be deducted over a period of 7 years.  This reforestation tax credit amidst recent carbon market legislation brings about questions for tree farmers and landowners on how to best take advantage of this growing carbon offsets market?

Find out if you qualify for the reforestation tax credit and why you may consider obtaining the reforestation credit.

As mentioned in our last post on Carbon Credits & Trees, recent legislation has allowed for the exchange of carbon credits when land owners take steps to become climate-neutral.  However, the risks associated with reforestation compel qualified landowners to insure these trees.  So who may qualify for the reforestation credit?

Do you Qualify for the Reforestation Tax Credit?

There are certain criteria that must be met in order to qualify for the reforestation tax credit.  In general, the following requirements must be met:

• Must use native tree species
• Plantings must be from nursery stock
• Reforestation must be guaranteed with a type of surety measure, which may include tree insurance.

With these requirements, the reforestation tax credit aims to promote reforestation where forest has been cleared as well as to encourage additional forest development and planting in agricultural fields. 

Why Consider the Reforestation Tax Credit?

The reforestation tax credit and other tax credits that benefit the environment represent the largest group of tax credits currently available.  For tree farmers, it is a smart tax credit to look into seeing as it could recapture some of the costs associated with preparing a site, seeds, labor and tools (including depreciation on equipment). 

If you’re considering applying for the reforestation tax credit, one important point to keep in mind is that the reforestation credit means trees cannot be disposed of before a 5 year period.  For the 7-year amortization, a 10 year time period is put into place.