Unintended Consequences: Effect of the American Jobs Creation Act Reforestation Incentives on Family Forest Owners in the South

The American Jobs Creation Act of 2004 rewrote the reforestation tax incentives available to private forest owners. Owners can now deduct outright reforestation costs up to $10,000 per year for each qualified timber property and amortize any additional amount over 8 tax years. To assess the economic effect of the new incentives on forest owners, the authors developed spreadsheets to calculate after-tax Bare Land Value (BLV) for representative management plans for family forests in the South under three tax situations: no reforestation incentives, the incentives under the previous law, and the incentives under the current law. We found that compared to no tax incentive, the current law chiefly benefits owners with high nontimber income, increasing BLV by roughly 20 percent, compared to 5–10 percent for owners with low or median income. Compared to the previous law, the current law chiefly benefits owners with large forest holdings, increasing BLV by roughly 5–15 percent, while decreasing BLV for owners with small holdings. These findings are significant since it appears Congress intended that the new incentives continue to benefit primarily “small woodland owners” with modest incomes and forest holdings.