Form T (Timber)
NOTE: A revised Form T- Forest Activities Schedule has been released. The form itself and the Instructions for Form T are now separate. The major change is a requirement to track each reforestation project separately, Part IV Reforestation and Timber Stand Activities. This change results from the impact of the reforestation deduction and amortization provisions on depletion accounts. Stands of timber resulting from reforestation projects for which the expenses have been deducted and/or amortized will have a zero basis and this must be discernible in your records. Changes to how casualty losses are treated and reforestation expenses recovered make it increasingly important that your depletion accounts be setup and maintained appropriately. The instructions also shed light on the definition of "qualified timber property" (QTP). This definition is important because the $10,000 expense deduction ($20,000 in Golf Opportunity Zones) applies to each QTP, a term introduced in the 2004 amendment of IRC Sec. 194. (Posted by WLH on 2/1/06)
Two major changes are obvious when you read the form. First, the minor schedules have been eliminated and the term "schedule" has been replaced by "Part". Part I is Acquisitions, Part II is for Timber Depletion, Part II is Profit or Loss From Land and Timber Sales, Part IV is Reforestation and Timber Stand Activities, and part V is land Ownership.
The second change is the guidelines on when Form T must be filed. Quoting from page 1: "You are not required to file Form T if you only have an occasional sale of timber (for example, one or two sales every 3 or 4 year). However, you must maintain adequate records of these transactions and other timber-related activities during the year, as discussed in Record keeping on this page. These transactions may be treated as an investment for tax purposes if your property is not held for use in a trade or business."
The instructions on the form indicate a greater awareness by the IRS of the distinction between a timber activity conducted as an investment and an activity that rises to the level of a business. They also place greater emphasis on the need to keep records adequate to substantiate transactions reported on your tax return.
Overview of form (Form is revised as of December 2005)
Part I - Acquisitions: Complete this part if you acquired timber, timber cutting contracts, or forest land during the tax year, whether the acquisition was by purchase, exchange, gift, or inheritance.
Part II - Timber Depletion: Complete this part for each timber account that has changed in quantity or dollar amount. A timber account may change in quantity or dollar amount as a result of acquisitions, dispositions, the cutting of timber, capitalized expenditures, casualty or theft losses, corrections, additions for growth, and transfers from other accounts. Use this part to figure depletion for timber cut or the basis for timber sold or lost during the tax year. A depletion schedule is required to be maintained for all types of timber ownership.
Part III - Profit or Loss From Land and Timber Sales: Complete this part if you sold or exchanged timber, timber
cutting contracts, or forest land during the tax year.
Part IV - Reforestation and Timber Stand Activities: Complete this part only if you paid or incurred expenses for during the tax year. Timber stand activities include all silvicultural prescriptions (such as burning, spraying, and thinning) applied to a timber stand regardless of age.
Part V - Land Ownership: Complete this part to show changes in ownership of land if you sold or exchanged land during the tax year.
Filing Instructions - Please refer to the instructions provided with the form