Pretty philosophic title, huh? LOL – anyway, its immediately what came to mind when trying to summarize what several forest industry groups, including the Forest Landowners Association (FLA), have been tracking as the new Biden Administration makes policy and approves legislation that can impact those who own small woodlots or expansive forestlands.
A recent FLA Webinar titled “The First Hundred Days of the Biden Administration” provided a few bullet points that the Association will be tracking to keep forest landowners informed of any upcoming circumstances that could affect how they manage their forest resources and finances going forward.
One of the main concentrations of the new administration will be on climate change. Currently there are three committees beginning to study climate change as it relates to forests and forest management:
- House Agricultural Committee
- The HAC will be studying “Climate Change and the US Agriculture and Forestry Sectors.”
- Senate Agriculture Committee
- The SAC will be studying “Farmers and Forests: Opportunities to Lead in Tackling Climate Change.”
- House Appropriations Subcommittee on Interior, Environment, and Related Agencies
- The HASIERA will be studying “Wood Innovation: Sustainable Forest Products to Reinvigorate Rural Economies.”
Projected legislation that may come out of the Biden Administration’s climate initiatives may include bills such as the “Replant Act”, the “National Climate Bank Act”, the “Trillion Trees Act”, and the “Forest Incentives Improvement Act.” As these committees develop policy drafts, and as these proposed bills are developed, the FLA and other organizations will be involved in review and analysis efforts, and as we learn more of the details, we will certainly share with you.
Another concentration the new administration will have (and has already announced) is its position on taxation. There are 5 main tax impacts that new rules, regulations, and proposed laws may have on forestland owners that are worth tracking:
1) Increased Estate Tax
Currently, an individual who owns more than $11.58 million in assets (or a married couple who own $23.16 million in assets) are subject to a 40% estate tax upon the owner’s death. The Biden Administration is talking about reducing the exemption amount to $3.5 million in assets for the individual or $7 million for a married couple.
2) Increased Top Rate on Ordinary Income
Ordinary income (wages, interest, etc.) is currently taxed at a maximum rate of 37%. Under current proposals, the new administration would increase the top rate from 37% to 39.6% for individuals earning more than $520,000 per year, and those married filing jointly who earn a combined $620,000 annually.
3) Increased Corporate Tax Rate
Forest landowners doing business as an S-corporation, partnership, LLC, or sole proprietorship currently pay the individual long-term capital gains and ordinary income tax rates as mentioned in the other sections. Those who may be doing business as a C-corporation would be subject to a different tax rate structure. The prior administration lowered the corporate rate from a high of 35% to 21%. The Biden Administration is reportedly seeking to raise the corporate tax rate to 28%.
4) Elimination of the 20% Qualified Business Income Deduction
If operated as a “business”, forest landowners are currently eligible for a 20% deduction on their qualified business income (QBI). The Biden Administration has proposed eliminating this deduction, but only for taxpayers with taxable income over $400,000.
5) Increased Top Rate on Long-Term Capital Gains
Most landowners selling timber from their property can elect capital gain treatment on their timber sale income, effectively providing a financial benefit to the landowner. Currently long-term capital gains are taxed at a maximum rate of 20%, as opposed to ordinary income tax levels that in some cases could top off at 37%. The Biden Administration has proposed that the capital gain election would stay in place, but depending on the individual’s income level, the long-term capital gain rate could go from 20% to as much as 39.6% (for those individuals with income over $1 million).
These are only a few of the policy changes that we will be following – future issues will deal with other new administration policy changes that may impact forests and forestry. Regardless of how or if these policy changes, if enacted, would affect you, it is always a wise idea to consult with your professional tax advisor as specific individual circumstances are involved and could be complicated. Forest and woodlot owners should certainly consider developing a plan that they can follow in conjunction with their accountant or tax planner to navigate the tax world to their best benefit.
Please note that the information presented here is for informational purposes only and is not intended to provide specific tax or legal advice or create a professional/fiduciary relationship. Each tax situation is different and consultation with your own personal tax professional is strongly recommended before acting on any of the information provided herein.
(Sources: Forest Landowner’s Association and andrewbosserman.com)