2018 was another record year of hurricanes and fires, which have inflicted huge economic losses to timber landowners as well as homeowners with landscape trees.
The good news is that landowners may be able to deduct eligible losses on their tax returns, which is an extremely important part of the relief and recovery efforts. These landowners are in great need of tax deduction information, especially in light of the most recent changes to the U.S. tax code.
The USDA Forest Service has published guidelines to help timber owners and home owners understand the deductions for timber or landscape trees damaged from casualties. Income Tax Deduction on Timber and Landscape Tree Loss from Casualty (PDF, 154 KB) was written by National Timber Tax Specialist Linda Wang, who provides customer service and assistance to landowners on tax and estate planning issues.
A casualty loss arises from a sudden, unusual, and unexpected cause such as a hurricane, fire, or other catastrophic event. The new changes will most directly affect homeowners with landscape trees, which are considered personal-use property for tax purposes, as well as those timber owners who own land primarily for personal enjoyment (such as its aesthetic beauty or family retreats) rather than marketability.
From 2018-2025, for homeowners and personal-use timber owners, only losses from federally-declared disasters will be deductible. The deduction, however, is subject to a 10%-adjusted-gross-income reduction as well as a $100-per-casualty reduction. Prior to 2018, these owners could deduct casualty losses on personal-use property regardless of whether or not those losses were due to federally-declared disasters.
However, the new laws do provide additional relief for homeowners and personal-use timber owners affected by the 2016 and 2017 federally-declared disasters, including Hurricanes Harvey, Irma and Maria. For these taxpayers, the $100 reduction will increase to $500, while the 10% reduction has been eliminated altogether.
Timber owners with profit intent are subject to a different set of rules. The deduction rule hasn’t changed for timber owners with profit in mind; they can still deduct losses subject to the timber’s cost basis limitation, whether those losses were incurred in a federal disaster or not. They are not subject to the 10-percent or $100-per casualty limitations.
“Timber landowners may have more tax advantages when they classify as investors with profit in mind rather than as personal-use property owners,” said Wang. “It’s important to understand how your woodlands are classified for tax purposes, as well as how the new tax code changes will impact your property.”
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During the 2014 ice storm, I lost a significant number of 19 yr old longleaf pine trees on 25 acres. The entire stand of trees was salvaged and replaced by replanting. Will I be able to make a claim against that loss at this time?
Can a person who owns timber land for personal use, investor or as a business deduct timber losses for damage done by EAB or spotted lantern fly?
@James G Fowke - Thank you for your question. It’s good to hear that you were able to salvage the stand and replant your property. To answer your question, it’s very important to file returns in timely fashion in order to claim eligible deductions. Typically, casualty losses are deductible in the year you sustain the loss, which is generally in the year the casualty occurred. If you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to treat the casualty loss as having occurred in the year immediately preceding the tax year in which you sustained the disaster loss, and you can deduct the loss on your return or amended return for that preceding tax year. See this link for more information: www.irs.gov/taxtopics/tc515.
There are exceptions, and additional tax relief in the form of postponed filing deadlines for disaster areas may be available, depending on the specific situations. You may wish to consult with your tax advisor to see if you are eligible for such an exception.
@Stephen Kutney - The destructive emerald ash borer (EAB) and spotted lanternfly can cause serious damage to trees, including mortality.
For tax purpose, many damages caused by insects generally don’t qualify as casualty loss when such damages are gradual or progressive over a period of time because these circumstances do not meet the “suddenness” required for casualty. However, under special circumstances, the IRS and the courts have allowed casualty loss deductions for residential trees destroyed by the epidemic Southern Pine Beetle (SPB) attack, when trees died within days. In another special situation, the IRS has allowed tax deductions on timber losses from unexpected and unusual insect attacks in a timber trade or business. Please consult with your tax advisor for special situations.