How to Complete and File IRS Form T (Timber): Forest Activities Schedule

To file IRS Form T (Timber), Forest Activities Schedule, attach it to your income tax return — Form 1040, 1065, 1120, or 1120-S — by the return’s due date, including extensions, and complete only the parts that match your activity during the year. The form has five parts covering acquisitions, timber depletion, sales, reforestation, and land ownership. Most tax software accepts Form T as a PDF attachment.

Do You Need to File Form T This Year

Three events trigger the filing requirement. You attach Form T if you claimed a depletion deduction on harvested timber, elected under Section 631(a) to treat a cutting as a sale or exchange, or disposed of timber under Section 631(b) through an outright sale or a pay-as-cut contract in which you kept an economic interest.¹ The triggers apply the same way to individuals, partnerships, S corporations, and C corporations. You do not need to own the land; a contract right to cut timber is enough to bring you within the requirement.²

If your timber sales are occasional — once every several years — you may have nothing to file in the years between. Records still matter in those quiet years, because the IRS can look back to the cost basis you established decades earlier when a future sale or harvest finally occurs.

The Section 631 Choice That Shapes Your Filing

Two provisions in Section 631 let timber income qualify for capital gains rates rather than ordinary income rates, and the one you use determines how you report the transaction.

Section 631(a): Electing to Treat the Cutting as a Sale

If you own timber, or hold a contract right to cut it, and have held that interest more than one year, you can elect on your return to treat the cutting itself as a sale or exchange. Your gain or loss is the difference between the timber’s fair market value on the first day of the tax year it was cut and your adjusted depletion basis. That fair market value then becomes your new cost basis in the cut timber going forward, so any further gain when you sell the lumber is measured from that new starting point.²

Think carefully before making this election. Once made, it applies to all timber you own or have a contract right to cut, and it stays in effect every future year unless the IRS grants a revocation for undue hardship. If the IRS does approve revocation, you cannot re-elect without its consent.³

Section 631(b): Outright Sales and Pay-As-Cut Contracts

When you dispose of standing timber held more than one year, either through an outright sale or through a contract in which you retain an economic interest, the difference between what you receive and your adjusted depletion basis is treated as gain or loss on a sale.² You retain an economic interest when your income depends on the timber actually being cut, the typical structure of a pay-as-cut (stumpage) contract where the buyer pays based on the volume harvested.

For pay-as-cut contracts, the date of disposal is normally the date the timber is cut. If the buyer pays you before cutting begins, you can elect to treat the payment date as the disposal date instead. Unlike the 631(a) election, 631(b) applies transaction by transaction rather than binding you across future years.

Completing Form T Part by Part

Form T has five parts. Fill in only the parts that apply to your year, though Part II usually appears whenever the form itself is required.

Part I: Acquisitions

Complete Part I if you acquired timber, a timber-cutting contract, or forest land during the year through purchase, exchange, gift, or inheritance. The form asks for the seller’s name and address, the acquisition date, and a full breakdown of consideration paid: cash, interest-bearing notes, non-interest-bearing notes, and other consideration. Legal expenses, cruising and surveying costs, and other acquisition expenses roll into the total cost on line 8.⁴

Line 9 does the heavy work. You allocate that total basis across categories: forested land, other unimproved land, improved land, merchantable timber, premerchantable timber, improvements, and mineral rights. For each, you enter units, cost per unit, and total cost. This allocation is the foundation of every future depletion calculation.

Allocating Basis Between Land and Timber

A timberland purchase price covers both the land and the standing timber, and the IRS requires you to separate them. Determine the fair market value of the land and of the timber independently, then allocate your total acquisition cost proportionally. If timber represents 60 percent of the combined fair market value, 60 percent of your purchase price (plus acquisition costs) becomes your timber basis.

For small tracts of low-value timber, published stumpage prices and comparable land sales can supply a reasonable estimate. For larger or more valuable holdings, the IRS expects a professional timber cruise, a physical inventory of species, sizes, and volumes conducted by a forester. The allocation is made as of the acquisition date even if the appraisal is prepared later. The form asks you to keep the details of your timber estimate available in case of examination.⁴

Part II: Timber Depletion

Part II is the core of the form. Complete it for each timber account that changed in quantity or dollar amount during the year, whether from a harvest, an acquisition, a casualty loss, a growth adjustment, a capitalized expenditure, or a transfer between accounts.⁵

The depletion math is straightforward. Divide the adjusted basis of your timber account by the total estimated recoverable units — board feet, cords, tons, or whatever unit you use — to get a per-unit depletion rate. Multiply that rate by the number of units actually cut or sold during the year. The result is your depletion deduction, the portion of your original investment you are recovering against this year’s harvest income. Line 10 walks through the multiplication.⁴

Part II also captures casualty and theft losses. Line 13 asks for the quantity of standing timber lost by fire or other cause; line 14 asks for the allowable basis of that loss. The deductible amount is the lesser of the decrease in fair market value before and after the casualty or the adjusted basis of the affected timber, reduced by any insurance proceeds or salvage value.⁴

Part III: Profit or Loss From Land and Timber Sales

Complete Part III for every disposition of timber, timber-cutting contracts, or forest land during the year, whether taxable or not. Gifts and distributions from an estate are not reported here. The form captures the block name, the total amount received, and the basis components (depletion, improvements, and other adjustments). The profit or loss on line 8 is the difference between what you received and the sum of those basis components.⁵

Section 631(a) elections and 631(b) sales land here. The gain or loss then flows to Schedule D or Form 4797, depending on the nature of the transaction and whether the timber qualifies for Section 1231 treatment.

Part IV: Reforestation and Timber Stand Activities

Part IV summarizes your reforestation and silvicultural spending for the year. Reforestation costs include site preparation (clearing brush, burning, spraying herbicides), the cost of seeds or seedlings, and labor and equipment used for planting or seeding. Other stand activities — pruning, thinning, fertilization, insect and disease control — also go here, split between amounts you capitalize and amounts you deduct currently.⁵

Under Section 194 you can immediately deduct up to $10,000 in qualifying reforestation expenditures per timber property per year ($5,000 if married filing separately; zero for trusts). Amounts above that threshold are amortized over 84 months, beginning in the second half of the tax year the expense was incurred.⁶ Section 194 provides only a deduction. There is no separate reforestation tax credit.

Part V: Land Ownership

Part V records all changes in your land account during the year, including purchases, sales, and exchanges of forest land. It keeps the land portion of your basis current and separate from the timber basis tracked in Parts I and II.

Filing Mechanics

Form T attaches to your annual income tax return: Form 1040 for individuals, Form 1065 for partnerships, Form 1120 for C corporations, Form 1120-S for S corporations. The due date matches your return’s due date, including extensions. Most tax software supports electronic attachment as a PDF supplement.

Records You Have to Keep, Sometimes for Decades

Record retention for timber is unlike almost any other tax situation. The IRS’s general rule is to keep records related to property until the statute of limitations expires for the year you dispose of the property.⁷ Timber stands can take 25 to 40 years to reach harvest age, so your original purchase documents, the timber cruise from the acquisition date, and every Form T you have filed along the way need to survive that long. If you inherited the property, keep the estate documents that established your stepped-up basis. Losing these records can mean losing the ability to prove your basis, which inflates your taxable gain when you eventually sell.

If you acquired timberland through a nontaxable exchange, such as a like-kind exchange under Section 1031, keep records for both the old property and the replacement until you dispose of the replacement and the statute of limitations runs on that final return.⁷

Inherited Timberland

Heirs who inherit timberland receive a stepped-up basis equal to the fair market value of the property on the date of the decedent’s death, or six months later if the executor elects the alternate valuation date. This new basis replaces whatever the original owner paid, often producing a much higher starting point for depletion — especially for land held for generations.

Establishing that fair market value usually requires a new timber cruise and land appraisal as close to the date of death as possible. Evidence from a federal estate tax return or state inheritance tax filing can support the valuation. The stepped-up basis is allocated between land and timber the same way any new acquisition would be, and that allocation goes into Part I of Form T for the year of inheritance. Heirs who skip this step and begin harvesting without documenting their new basis often discover the problem years later, when they cannot substantiate their depletion deductions.

1
Internal Revenue Service. About Form T (Timber), Forest Activities Schedule
2
Office of the Law Revision Counsel. 26 USC 631 – Gain or Loss in the Case of Timber, Coal, or Domestic Iron Ore
3
eCFR. 26 CFR 1.631-1 – Election to Consider Cutting as Sale or Exchange
4
Internal Revenue Service. Form T (Timber)
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Internal Revenue Service. Instructions for Form T (Timber)
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Office of the Law Revision Counsel. 26 USC 194 – Treatment of Reforestation Expenditures
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Internal Revenue Service. How Long Should I Keep Records?