Private Forest Lands: Jobs, the Environment and the Role of the U.S. Tax Code

Private working forests are natural resources that provide our society with important economic, environmental, and public benefits. The number of acres of private forestland has remained stable over the last 50 years, while productivity has increased substantially through good stewardship. Federal income tax policies are fundamentally important to this outcome. Policymakers have long acknowledged that the Federal tax system must reflect the ongoing economic realities of managing private forestland and encourage long-term investment to allow for this important stewardship.

A 2012 NAFO report indicates there would be four significant consequences of repeal of the timber tax provisions in the Internal Revenue Code:

  • A 15 percent reduction in forestry and timber sales resulting in the loss of $34 billion in annual receipts and approximately 140,000 jobs in the forest products industry;
  • A substantial reduction in active forest management caused by capitalizing management costs and eliminating the ability to deduct such costs as they are incurred. This will result in the loss of forest productivity and deterioration of social benefits derived from active forest management;
  • A net tax increase for private forest owners making forestland a less viable U.S. investment, causing the restructuring of forest ownership, including the conversion of forests to other uses, and moving U.S. forestland investment dollars overseas; and
  • Less Federal tax revenue than anticipated as businesses respond to the repeal of the timber tax provisions.

Existing Federal Tax Law Reflects the Economic Reality of Growing Trees

To encourage the important stewardship of private working forests in the United States, policymakers have long acknowledged that Federal tax policy must take into account the unique nature of timber investment and stewardship. The timber tax provisions in the Internal Revenue Code are vital to the continuing viability of owning and managing productive U.S. timberland.

Growing timber takes time and ties up a large amount of investment capital. A marketable tree takes between 20 and 80 years to reach economic maturity, depending on geography and purpose.

Growing trees is risky and mostly uninsurable. Every year, fire, pests, disease, wind and other natural disturbances destroy tens of thousands of acres of private forest. The economic risks that forest owners face include price risk (volatility of log prices), supply risk (productivity and regulatory constraints), demand risk (availability of substitutable materials and/or reductions in demand due to economic conditions), and liquidity risk (ability to dispose of timberland).

Specifically, the Federal tax code recognizes the unique characteristics of timber investments by allowing taxpayers to:

  • Deduct the costs of forest management, including preventative measures (fire, pest and disease), thinning, fertilization, interest, taxes, protection of wetlands and endangered species, and forestry activities, as these costs are incurred. (IRC Section 263A(c)(5))
  • Receive capital gains treatment (since 1944) for the harvest of timber or sales of standing trees. This recognizes taxpayers’ large up-front investment and the long holding periods before realizing any gains. (IRC Sections 1231(b)(2) and 631(a)&(b))
  • Deduct up to $10,000 of reforestation costs as they are incurred, with the remainder amortized over 7 years. (IRC Section 194)

Timber Tax Provisions Help Private Forest Owners Make Important Contributions to the U.S. Economy

Private forest owners hold more than half of all U.S. forestland, from small family-owned timberlands to large operations owning millions of acres. Private forest owners and the timber they produce make a significant contribution to U.S. GDP and employment, providing more than a million direct jobs, with total payroll $87 billion and $224 billion in timber and related sales. Total industry-related jobs increase to nearly 2.4 million jobs when considering direct, indirect, and induced employment.[1]

Notwithstanding the significant contributions of private forests to the nation’s economy, the current recession has led to significant job losses in the forest products industry. Since 2006, direct employment in the industry declined from 1.6 million to 1.1 million, representing a 31 percent workforce reduction. The Forestry and Logging sector (NAICS 113) lost 21 percent of its employment from 2006 to 2011.

Timber Tax Provisions Help Private Forestland Provide Important Environmental and Societal Benefits

Private working forests provide significant environmental benefits. Trees act as nature’s air and water filters. U.S. forestland provides nearly two-thirds of the nation’s clean water, providing clean water to 40 percent of all municipalities in the United States.

Private working forests also contribute non-timber forest products to the economy, including medicines, food and horticultural products. They also provide a variety of recreational and aesthetic benefits to the American public.

In addition, private working forests absorb carbon from the atmosphere, reducing the effects of carbon dioxide emissions. Studies show that increasing the extent and productivity of working forests is a cost-effective strategy for reducing the effects of greenhouse gases by contributing to: (1) carbon sequestration through forest regrowth after harvest, (2) production of energy-efficient materials and biomass energy as an alternative to fossil fuel energy, and (3) carbon storage in wood products.

Repeal of the timber tax provisions would result in systemic changes in the forest products industry in the United States:

Reduced Employment in the Forest Products Industry – Eliminating these timber provisions would lower the financial returns for investment in U.S. timber and forestland, resulting in less productive forestland and U.S. investment and consequently fewer U.S. jobs. Repeal of the current-law tax provisions would cause a 15 percent decline in forestry and timber domestic sales, a $34 billion annual decrease in domestic shipments for the forestry, wood products, and pulp and paper sectors and a loss of approximately 140,000 jobs.[2]

Loss of a Productive Timber Base and Associated Environmental Benefits – By allowing taxpayers to match closely taxable income with cash flow, current Federal tax law helps maintain a productive timber base. Forest management cost increases would force private forest owners to alter drastically their forest management practices, if they could not deduct forest management costs as they are incurred. Reduced management would make private timberland less productive and would prevent forest owners from protecting wetlands and endangered species and engage in other environmentally positive activities.

A March 2010 Journal of Forestry paper highlights the problem for private forest owners:

“Investments in private forests are inherently long term, whereas costs are annual; liquidity is low; and risks from wildfire, insects, and disease can be high. Under such circumstances, a poor tax policy can discourage forest investments (emphasis added). If Americans are to continue to enjoy all the benefits they get from America’s private forestlands, then reasonable returns from forestland investments are needed. Such returns are possible only if tax policies are sound (emphasis added).”[3]

Unfair Increase in Federal Tax Liability – As policymakers consider reform of the Federal corporate income tax, it is important to remember that a significant proportion of private forest owners and investors would not benefit from reductions in the corporate income tax rate. Thus, for most private forest owners and investors, repealing the current-law provisions that apply to timber as part of corporate tax reform would result in an unfair Federal tax liability increase compared to current law.

Jeopardizing Forestland As a Viable Investment – Because prices drive the sale of timber in the United States, eliminating the timber tax provisions would result in lower productivity and higher prices for U.S. timber. This, in turn, would cause a shift in manufacturing offshore and an increase in log and wood products imports from Canada, South America, Northern Europe, and other countries.

Also, because many other countries provide either higher investment returns or tax policy that encourages timber investments, eliminating the existing Federal tax law provisions for timber would eliminate comparative investment benefits of private forestland in the U.S. This would reduce investment in private forests and force the conversion of private forests into other more economically competitive land uses. The loss of productive forestland would impair the ability of American wood products and paper manufacturing companies to compete against foreign producers and sustain U.S. jobs.

Less, Rather Than More, Federal Tax Revenue – The behavioral response to repeal of the timber tax provisions would reduce anticipated revenue effects and result in less Federal tax revenue. The adverse effects that repeal would have on employment and business activity – both in the industry and in related industries – would overshadow the potential increase in Federal revenues that would occur with repeal of these provisions. If private forest owners were required to capitalize their timber-growing and reforestation costs, for example, their response would be to lower costs by reducing investment in forest management. Such reductions would negatively impact forest health and productivity and reduce taxable income.

Thus, while requiring timber management costs to be capitalized may conceivably produce short-term revenue gains, these gains will be offset by lower profits when timber or forestland is sold. Further the systemic changes in the industry, including selling timberland or converting it to other uses, reductions in timberland productivity, declines in manufacturing, job loss and shifting investments to timberland outside the United States would overshadow any potential increase in Federal revenues that would occur with repeal of these provisions and reduce Federal revenues – perhaps significantly – over the long-term.


  1. The Economic Impact of Privately-Owner Forests in the United States (June 2013).
  2. To estimate these workforce reductions, we considered the contribution of the forestry sector to revenues in the wood products and pulp and paper industries, per employee contributions to output, and the effects of the repeal of the current-law tax provisions by entity type and size. The estimated 15 percent reduction is a weighted reduction in output, by entity size and is consistent with historical data (considering the relative declines during the recession) by entity size. This estimate does not include the job losses in other industries (indirect and induced employment) that rely on the forest products industries. These losses would result in additional job losses in other sectors with the greatest effect in rural areas.
  3. Kimbell, Abigail, Cliff Hickman, and Hutch Brown. How Do Taxes Affect America’s Private Forestland Owners? Journal of Forestry (March 2010, p. 93).