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Reporting the Expense and Amortization Deductions

The election to amortize qualified reforestation expenses is made by filing Federal Form 4562, Depreciation and Amortization. Everyone claiming a reforestation amortization deduction must file Form 4562. The deduction for the current tax year is reported in Part VI-Amortization, line 42: "Amortization of costs that begins during your 2005 tax year". Amounts from previous years are totaled and reported in Part VI, line 43: "Amortization of costs that began before 2005". Amounts from line 42 and 43 are added together and reported on line 44. The total from line 44 is carried over to your business schedule if you file as a business or to Form 1040 if you file as an investor (see below).
You are required to file an attachment to Form 4562 stating the amount and nature of the expenditures you are claiming, the date each was incurred, the type of timber being grown, the purpose for which it is being grown, and the specific property (QTP) being reforested. A separate attachment must be included for each property for which expenditures are being amortized. The attachment only needs to be filed for those years when reforestation expenditures are made which you elect to amortize.

Business - If you file as a business the total amortization deduction from Form 4562, line 44 is reported as follows.

Schedule C (Sole Proprietorship): Use Part V, "Other expenses," and write in "Amortization from Form 4562".

Schedule F (Farm): Use Part II, line 34 "Other Expenses (specify)," and write in "Amortization from Form 4562".

Form 1065 (Partnership): On line 20, and include "Amortization from Form 4562" on the attached schedule of other deductions.

Form 1120 (Corporation): On line 26, and include Amortization from Form 4562" on the attached schedule of other deductions.

Form 1120 S (S Corporation): On line 19, and include "Am ortization from Form 4562" on the attached schedule of other deductions.

Investment - If you file as an investor the total amortization de duction from Form 4562, line 44 is reported as follows:

Schedule C (Sole Proprietorship): Use Part V, "Other expenses," and write in "Amortization from Form 4562".

Schedule F (Farm): Use Part II, line 34 "Other Expenses (specify)," and write in "Amortization from Form 4562".

Form 1065 (Partnership): On line 20, and include "Amortization from Form 4562" on the attached schedule of other deductions.

Form 1120 (Corporation): On line 26, and include Amortization from Form 4562" on the attached schedule of other deductions.

Form 1120 S (S Corporation): On line 19, and include "Am ortization from Form 4562" on the attached schedule of other deductions.

Investment - If you file as an investor the total amortization de duction from Form 4562, line 44 is reported as follows:

Form 1040 (Individual Income Tax Return): On line 36, enter "Reforestation" and the amount on the dotted line. You will need to add this amount to lines 23 - 35 and put the total on line 36. Thus, the deduction is reported as an adjustment to gross income, providing a tax benefit even if you take the standard deduction instead of itemizing.

Reporting a Current Expense Deduction:

The election to deduct currently up to $10,000 per year of qualified reforestation expenditures for each Qualified Timber Property (QTP) is made by reporting the allowable amount as an investment or business expense. The procedure described above for the amortization deduction is followed if you're an investor. If you file as a business the expenditure is reported on your Form 1040 Schedule C or F, or Form 1120, 1065, 1065S, etc.

Form T - Forest Activities Schedule

Your reforestation expenditures must be recorded each year on Form T, Part IV, "Reforestation and Timber Stand Activities." You are required to report separately by account, block, tract, area, or stand ID for each QTP. After it's completely filled out Form T, Part IV becomes part of your records for as long as you own the land. You do not include Form T, Part IV with your return sent to the IRS unless you are otherwise required to file Form T. You are never required to file Form T if you only have an occasional sale of timber (one or two sales every 3 or 4 years).