HR262-119

What This Bill Does

The Disaster Reforestation Act amends Internal Revenue Code section 165 to change how casualty losses are deducted for uncut timber. For uncut timber lost from fire, storm, other casualty, or theft, the deduction basis cannot be less than the appraised pre-loss value of the timber minus salvage value. The appraisal valuation date must be no later than one year after the casualty loss, the appraisal must follow USPAP, be limited to the lost timber value, and be completed by a federal- or state-certified appraiser. If the taxpayer cannot complete the appraisal by the tax return due date, the taxpayer may estimate the pre-loss value and later file an amended return after the appraisal, with taxable income adjusted up or down by the difference. The rule applies only to timber held for cutting and sale in an active trade or business, includes pre-merchantable timber, requires reforestation by planting, seeding, or site preparation within five years, directs Treasury recapture rules if the taxpayer fails to reforest, and treats wood-destroying insects, invasive species, and severe drought as other casualties. It applies to losses in taxable years beginning after enactment.

Who Benefits and How

Timber growers benefit because casualty-loss deductions can use appraised pre-loss timber value rather than a lower basis figure. Forest landowners with business timber benefit from coverage for fire, storms, theft, insects, invasive species, severe drought, and pre-merchantable timber. Rural forestry communities benefit if the deduction makes reforestation after disasters more financially feasible. Certified timber appraisers benefit from required USPAP-compliant appraisals after casualty losses.

Who Bears the Burden and How

Taxpayers claiming the deduction must obtain certified appraisals, reforest within five years, file amended returns if estimates change, and face recapture for noncompliance. The Internal Revenue Service must administer appraisal timing, estimate adjustments, business-use limits, reforestation requirements, and recapture regulations. Federal taxpayers bear the revenue cost of larger casualty-loss deductions for qualifying timber losses. Passive timber investors do not qualify because the timber must be held for cutting and sale in a non-passive trade or business.

Key Provisions

• Amends section 165 to set casualty-loss deduction basis for uncut timber at appraised pre-loss value minus salvage value.
• Requires USPAP-compliant appraisals by certified appraisers within one year of the casualty loss.
• Provides estimate and amended-return rules when an appraisal is not complete by the tax return due date.
• Requires business use and reforestation within five years, with recapture rules for failure to reforest.