Tax Policy

Family forest owners

The greatest challenge to sustaining America’s forests and their many valuable services is stemming the fragmentation and conversion of family-owned forest holdings. Both are largely driven by economic factors, and federal tax policy can play an important role in determining land use outcomes.

Federal income tax treatment affects the comparative returns to forests and other land uses and can often encourage conversion. The federal estate tax can push heirs toward fragmentation or liquidation of viable working forests. The tax treatment of conservation activities can undermine the effect of measures intended to keep forests intact and protect their valuable ecosystem services. Federal tax policy can play an important role in furthering the public’s interest in promoting adequate investment in and sustainable management of the nation’s family-owned forests.

Changes to federal tax policy can make a significant difference in the economics of ownership and management of family forest land. Enhanced returns would improve the ability of family forest owners to manage their holdings sustainably, reduce the incentives for owners to convert their forest land to other uses, and help maintain working forests for the long-term health of rural economies and the provision of a wide range of public benefits.

For these outcomes to be realized, tax policies must recognize the unique and long-term characteristics associated with timber and forest management investments, treat timber and forest management investments equitably in comparison to other capital ventures, and discourage the use of practices that result in environmental degradation or permanent conversion to non-forest land uses.

There also is a need to preserve the family forest landowner base and forest employment through favorable tax policies. Forests are a unique resource that does not fit neatly into the rest of the federal tax code, and require a fresh approach. The time is now to develop a comprehensive tax policy that favors forest management activities and family forest landowners. This new comprehensive tax policy can be implemented in the next Farm Bill or through other related legislation regarding tax reform.