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Startup and Organizational Costs - How far back

Level 2

I have a client who is starting a tree farm.  He is planting seeds this year and expects to begin selling the trees in 5 years. He asked how far back you can go for startup costs?  In other words, if he plants in 2021, but does not harvest/begin selling until 2026, can he start amortizing his startup costs incurred from 2021 - 2026 on the 2026 return?

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3 Replies 3
Level 15

I believe there are special rules for agricultural activities such as tree farms.


ex-AllStar
Level 11
Level 11

Hear is a good site for you to research:

https://www.timbertax.org/getstarted/structure/treefarm/

Also see pub 225. Here is an excerpt:

Forestation and reforestation costs. 

You can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. Any remaining costs can be amortized over an 84-month period. See chapter 7. If you make an election to deduct or amortize qualifying reforestation costs, you should create and maintain separate timber accounts for each qualified timber property. The accounts should include all reforestation treatments and the dates they were applied. Any qualified timber property that is subject to the deduction or amortization election can't be included in any other timber account for which depletion is allowed. The timber account should be maintained until the timber is disposed of. For more information, see Notice 2006-47, 2006-20 I.R.B. 892, available at IRS.gov/irb/2006-20_IRB/ar11.html.

Level 2

Thank You!

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