Funding For Forestry Could Be Overshadowed By Changes In Tax Laws

Democrats in Congress are working to pass President Biden’s “Build Back Better” plan, legislation related to soft infrastructure that also contains several initiatives to address climate change, including funding for conservation programs to assist private forest landowners in implementing climate mitigation and forest resilience practices. But these same landowners are likely to end up paying more taxes under changes being proposed to federal tax laws in order to pay for the plan.

The Democratic tax plan proposes to increase the top capital gains rate from the current rate of 20 percent to 25 percent, which would have a direct impact on the taxes landowners pay on timber sales. The plan also calls for an increase in the top income tax rate to 39.6 percent from 37 percent, adds 3 percent surcharge on Americans with an adjusted income of more than $5 million per year, and implements a 3.8 percent net investment income tax on income from pass-through entities such as S corporations, partnerships, trusts, and estates.

As far as inheritance taxes are concerned, the tax plan does not eliminate the step-up basis at the death of taxpayer or the imposition of a capital gains tax on the appreciated assets, two measures floated by the Biden administration. But it does propose to end the temporary increase in the estate and gift tax exemption amount, currently set at $11.7 million, at the end of 2021, four years before it was due to expire. If this provision becomes law, the estate tax exemption reverts back to $5 million, indexed for inflation.

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