reforestation amortization

[Bill Tubbs]

According to Pub 535, pg 36, reforestation costs can be amortized over 7 years. (Yes, I know up to $10,000 can be elected as a deduction, but I'm focusing on the amortizing.)

A qualifying cost includes "Depreciation on equipment used in planting and seeding." So, with a $10,000 tractor used for planting, do I first put it on a depreciation schedule (which 2005 the depreciation would be $803 using 150DB, HY), then amortize that $803 over 7 years??? If so, that's only a $57 deduction for 2005 ($803 / 7 yrs / 2 -- starting July 1).

I can see amortizing the seeds, etc. over 7 years, but to take depreciation -- which is already over 7 years and amortize each year's depreciation too?!? That seems a bit out of whack to me?

Or am I the one out of whack?!?

Bill

[cpadan]

Qualifing cost are cost that would otherwise be capitalized and added the the cost of the property.. If your client is a farmer, the equipent is probably used for farming as well and depreciated on Schedule F.

On the otherhand, if he was a small timber owner and bought the equipment specifically for reforestation, he would amortize or expense up to $10,000 along with the other reforest cost and show it as an adjustment on line 36 of form 1040.

Hope that helps
Dan

[Bill Tubbs]

Qualifing cost are cost that would otherwise be capitalized and added the the cost of the property.. If your client is a farmer, the equipent is probably used for farming as well and depreciated on Schedule F.

On the otherhand, if he was a small timber owner and bought the equipment specifically for reforestation, he would amortize or expense up to $10,000 along with the other reforest cost and show it as an adjustment on line 36 of form 1040.

Client is not farmer, so no Sch F. Was planning on amortizing on Line 36 of 1040. The question remains:

I can see amortizing the seeds, etc. over 7 years, but to take depreciation -- which is already over 7 years and amortize each year's depreciation too?!? That seems a bit out of whack to me?


Bill

[cpadan]

You can not depreciate the tractor in this case, you have to amortize or expense up to $10,000.
Dan