Table 2.23—Major timber-related provisions of current Federal income tax law 
Provision 
Tax rates on ordinary 
income 
Tax rates on long-term 
capital gains income 
Deductibility of 
management costs 
Reforestation incentives 
324 
Current law 
Individuals, depending on their income, dependency, and marital status, will be taxed at one of 
5 rates, ranging from 11 to 38-1/2 percent, in 1987; and at one of two rates—15 or 28 percent—in 
1988 and later years. Beginning in 1989, rate progression will be adjusted annually for inflation. 
Corporate tax rates also vary with income, but in most instances—i.e., for all taxable income in 
excess of $100,000—the relevant rate will be 34 percent beginning July 1, 1987. Rate 
progression is not adjusted for inflation. 
Beginning in 1988 for some individuals and in 1987 for others, and on July 1, 1987, for 
corporations—all long-term capital gains income, including that realized from cutting or selling 
timber, will be taxed at the same rate as ordinary income. 
Except as provided for in the reforestation incentive provisions discussed below, all management 
costs directly associated with stand establishment must be “‘capitalized.’’ This means that such 
costs can only be recovered by deducting them from the income that is received when the timber 
to which they are related is cut and/or sold. In contrast, most management costs incurred after 
stand establishment are ‘‘expensable’’ for certain taxpayers. This means that such costs can be 
recovered in the same year as paid by deducting them from ordinary income from any source. 
The exact rules vary by taxpayer category. If the taxpayer is an active business, all management 
costs, property taxes and interest are fully deductible each year—i.e.,fully expensable. For active 
investors, property taxes are fully deductible; management expenses must be aggregated with 
other ‘‘miscellaneous itemized deductions’’ and the total is deductible only to the extent it 
exceeds 2 percent of adjusted gross income; and interest charges associated with the timber 
investment are deductible only to the extent of total investment income for the year. Passive 
participants in a timber investment or business may only deduct property taxes, interest and 
management costs to the extent of passive income for the year. 
Owners have the option, on up to $10,000 of qualifying reforestation expenditures per year, of 
taking a 10-percent tax credit and amortizing 100 percent of the costs over 84 months. Qualifying 
reforestation expenditures include site preparation, planting, and seed or seedlings. 
