I recently received a question from a reader that I figured would be helpful to share:
Can we deduct our older mature trees that did not sell because they are too old and mature? We need to clear this land for replanting and were wondering if we can write off this value [the current price they would sell for].
As a general rule, a Christmas tree grower can typically deduct the cost of any culled trees. The key word is cost, not the current market value of the tree. “Lost revenue” is not a deductible expense.
Typically, this write-off process performed through keeping a proper inventory. A grower’s tree count at the beginning of the year + any trees planted – trees disposed of (sold, culled, etc.) = tree count at the end of the year. On the tax return, a grower’s “cost of goods sold” or “depletion” should include the cost of all trees sold, culled, or otherwise disposed of.
However, not every grower keeps a proper inventory. The most common way to improperly calculate inventory is to deduct the cost of seedlings and planting costs in the year of planting (instead of the year of disposal). In this instance, a grower would not be entitled to a deduction when the tree is sold, culled, or disposed of because the cost of the tree has already been deducted.
In short, a grower looking to deduct the cost of culled trees will want to make sure they have not already deducted the cost of the trees they culled. If a grower has correctly included the cost of the trees (and other planting-related expenses), then the deductible amount likely would be the cost, not the market value of the trees.
Feel free to reach out with any other questions. You might just end up helping others by making it into another Q&A post!
