SP677 Hardwood Plantations as an Investment

Deciding what to do with a piece of land is not always easy. Appraisers use the phrase “highest and best use,” which implies that one should use the land for its maximum “economic/monetary value.” For example, would the landowner make more money by building a new shopping center or residential subdivision (with a substantial investment required) or would he or she do “better” renting to a livestock producer for grazing or cutting hay? Many acres are valuable as cropland growing annual crops such as soybeans, wheat or cotton. The choices for using land are many.

One choice that should be considered is the planting of tree crops intended for the timber market. Although a large number of acres are required for an annual income from timber crops, owners with more modest-sized properties, and who do not require annual income from their land, can ultimately achieve profits from growing trees.

Several factors should be assessed when planting tree crops. Trees grow at varying rates, depending on the species present and the productive capacity of the soil. Timber values have increased in the past and are expected to do so in the future. Once tree crops are established, they require minimal inputs/costs relative to other land uses such as farming or producing livestock.

Tax treatment of tree crops is also favorable relative to other investments. The Internal Revenue Service allows the deduction of certain timber establishment costs according to Reforestation Tax Incentives. Income from timber sales is taxed at longterm capital gains rates when the trees are ultimately harvested. Cost-sharing programs are also available for many tree-planting efforts.

Tree crops/forests are not for all landowners, but can be profitably managed and enjoyed as they grow into timber/wood products. As planted trees become forests, they become habitat for a variety of wildlife species and places of beauty and solitude, while protecting soil and water for years to come. For many landowners, these non-market values become greater than the monetary return originally considered when deciding what to do with their land.

Does tree planting pay? For many, it pays several times over in personal satisfaction even before profit is realized. For others with an interest in potential financial returns, let’s look at the factors involved.