WVFA Spring 2019

I N D U S T R Y N E W S 18 West Virginia Forestry Association Mountain State Forestry  | Spring 2019 www.wvfa.org Example 9: Mr. and Mrs. Lee incurred $17,000 to replant their property in 2018. They deduct $10,000, plus 1/14th ($500) of the remaining $7,000 in 2018 for a total deduction of $10,500. For 2019–2024, they will deduct 1/7th (or $1,000) of the $7,000. In 2025, they will deduct the last 1/14th (or $500). Report the deduction as an adjustment to gross income on the front of Form 1040 for investment, or Schedule C for business. Elect to amortize on Form 4562. Also, attach a statement to the return showing the date, location, and amount of the expenditure. Depreciation, Sec. 179 Expensing and Bonus Depreciation For timber held as an investment or a business, you may take depreciation on the assets used (for example, tractor, logging equipment, bridge, culvert, fence, or temporary road). Land is not depreciable. Also, business taxpayers may elect to deduct up to $1,000,000 for qualifying property in 2018, subject to $2,500,000 annual phase-out and business taxable income limitations (Sec. 179 expensing). Also, eligible taxpayers may take a bonus depreciation equal to 100 percent of the cost of qualifying property. Net Investment Income Tax Timber sales from an investment or passive business may be subject to a 3.8-percent net investment income tax for single taxpayers with adjusted gross income (AGI) over $200,000 (or $250,000 for couples). Example 10: Mr. and Mrs. McDonald sold investment timber at a $40,000 gain. Assuming their AGI was $270,000, the lesser of the timber gain or $20,000 ($270,000 - $250,000 threshold) are subject to the 3.8-percent tax ($760 tax). Cost-Share Payments You may exclude part or all of a qualified cost-share payment you received from your income if it was used for capital expenditure. Otherwise, report it as ordinary income. Qualified Federal programs for income exclusion include the Forest Health Protection Program, Conservation Reserve Program (CRP), Conservation Security Program, and Environmental Quality Incentives Program. Several State programs also qualify for exclusion. The excludable amount is the present value of the greater of $2.50 per acre or 10 percent of the average annual income from the affected acres over the last three years. Example 11: Mr. Hill received $6,000 from CRP cost share for qualified capital expenditure in his timberland. If he had no income from the property in the last three years, he could exclude up to $4,912 (($2.50 x 100 acres) ÷ 5.09%) from his income. The interest rate is from the Farm Credit System Bank. If he had $9,600 of income from the property in the last three years, he could exclude up to $6,287 ((10% x ($9,600 ÷ 3)) ÷ 5.09%). Attach a statement to the tax return describing the cost-share program and the exclusion calculations. Filing Form T (Timber) Form T (Timber), Forest Activities Schedule, is required if you claim a timber-depletion deduction, sell cut products in a business (under Sec. 631(a)), or sell outright business timber. However, you are not required to file if you only have occasional timber sales (one or two sales every three or three years). Conservation Easement Donation of a qualified conservation easement are tax deductible. The deduction is up to 50 percent (or 100 percent for qualified farmers and ranchers, including forest landowners) of the taxpayer’s AGI in a year. Any excess amount of donation over the 50- or 100-percent limit may be carried forward for 15 years. Like-Kind Exchanges The tax deferral rules for like-kind exchanges after December 31, 2017, apply only to exchanges of real property not held primarily for sale. It no longer applies to personal property. Annual Gift Tax Exclusion The annual gift tax exclusion is the amount you may give away per person, per year, in a tax-free manner. Gifts given as either lump sum amounts, or as a series of amounts to the same person throughout the course of one calendar year, are not subject to the gift tax, if totals do not exceed $15,000. In 2018, the annual gift tax exclusion grew by $1000; up from $14,000 in 2017. The annual gift tax exclusion figures are applied individually, based on each gift recipient. For example, let’s say that in 2018, you gave $15,000 in cash to your daughter, a $15,000 car to your son, a $15,000 diamond ring to your best friend, and $15,000 worth of stock to each of your grandkids. In this scenario, none of these offerings would be federally taxable, since no single individual received more than the $15,000 limit. » continued from previous page