Managed Forest Law: A Little-Known Jewel of Wisconsin Forest Land Ownership
The Wisconsin Managed Forest Law Program (“MFL”) is a little-known area of land ownership that allows an owner, through an application process, to enjoy the benefits of very low real estate taxation. Often enrollment will lower the real estate tax bill of a 40-acre parcel from thousands of dollars to less than $100. There are also some income tax benefits that are allowable as a result of operating under the program. In order to qualify for the MFL, one must agree to a contract with the State of Wisconsin that he/she will institute and maintain sustainable forestry practices and objectives.
Although those requirements sound onerous, almost each and every county has a state forester that will be more than happy to put together a management plan. In order to qualify for MFL designation, one must have at least 10 contiguous acres, 80 percent of which must be covered by or dedicated to forest product which is capable of commercial timber production (this is a very simplified definition). A forester needs to review the land to determine whether or not its current condition will allow MFL designation. (One may also be eligible by planting properties to certain species to qualify for the 80 percent-covered definition.)
The management plan will require the harvest of timber according to forestry standards as set by the Department of Natural Resources (i.e., cutting trees on a rotational basis and replanting upon cutting), or the engagement in other reforestation practices.
Generally, land enrolled in the MFL program is open for public recreational uses (discussed below). The MFL requires that any amount of acreage up to the 160 acres (per county) must be open for public use. One can enroll up to 160 contiguous acres with the MFL and still keep the lands closed for recreational use, but he/she will pay a slightly higher real estate tax on each acre that is closed. However, it is negligible if one wants to keep third parties from recreating on his/her land.
If one owns more than 160 acres, there are a number of ways that he/she may be enrolled in the MFL program and be able to continue using the land in the closed fashion. The general rule in all these matters is to consult the state forester in charge of one’s program before proceeding with any application or attempt to enroll lands in the MFL and keep them closed.
As set forth above, each individual owner is entitled to 160 acres of closed land. Say, for instance, one has a section of land (640 acres) and wants to enroll it in the MFL. He/she could put each 160-acre quarter section into a separate limited liability company, however, each of the owners of the limited liability company need to be different persons. For instance, with a family of four adults, a husband could own 160 acres, the wife could own 160 acres, and each of their two children could own 160 acres in their own LLC and still close the entire section off to public access.
If one does not restrict access in his/her MFL contract in acreages enrolled in the plan, he/she must allow access for hunting and fishing, hiking, sightseeing and other recreational purposes. One can restrict vehicular access and allow only foot access to the property.
The beauty of land enrolled in the MFL is one is eligible to file a Schedule F under his/her personal tax return. The current income tax laws allow a full deduction of normal business expenses that would not otherwise be deductible against ordinary income. This means mileage, tractors, ATVs, chainsaws and other items necessarily used in carrying out the forest management plan are deductible against ordinary income through Schedule F on one’s personal tax return. Of course, one has to declare the income on the forest products as they are cut and removed from the land according to his/her management plan. However, enrollment in the MFL and signing a management plan are automatically prima facie evidence of his/her desire to operate a “tree farm” in a for-profit mode.
As with most governmental programs, there is a downside in having the MFL designation. No dwellings are allowed on MFL land. One is allowed buildings, like a pole building, for the purpose of operating MFL lands. However, any building for living space that has at least five of the eight following characteristics is not allowable:
- Living space of more than 800 square feet;
- Indoor plumbing;
- Central heating or cooling;
- Basement (full or partial);
- Electrical service;
- Attached garage;
- Local telephone service; or
- Building insulation.
The reality of the five-of-eight characteristic rule is that any reasonable structure for human habitation is not allowed on MFL lands. The best rule of thumb when enrolling in MFL lands (or in purchasing land subject to an MFL contract) is to exclude not only current building sites, but any future building sites that one may wish to utilize on MFL land.
Once enrolled, one loses the ability to dictate how and when trees are cut on his/her property. Once one is subject to an MFL management plan, the forester makes a determination of when and how timber shall be cut. One must notify the DNR forester at least 30 days prior to cutting through a cutting notice, and also file a separate notice with the clerk in the county in which the cutting will take place. One’s best bet is to ensure he/she closely coordinates with the forester for his/her area to ensure compliance with all the timber harvest requirements. In addition, one will be required to declare a yield tax on what is harvested. The DNR will calculate the yield tax based on the volume of wood cut and the species cut. (A yield tax is not assessed upon any wood that is cut for firewood on one’s property and utilized on the property.)
He/she also may not subdivide MFL lands into fractional ownership or fractional lots. If one has 40-acre parcels, those quarter, quarter sections are allowed to be transferred as long as the new owner agrees to the management plan remaining in place. If one does subdivide MFL lands (that is allowable), he/she will pay a withdrawal penalty of essentially the real estate taxes that he/she saves for each year he/she is in the program. MFL parcels are enrolled for either 25 or 50 years.
In conclusion, taking existing either forested or former farmlands and converting them to MFL management plan parcels is a great way to substantially lower the real estate tax burden for a forested parcel. It will also allow one to continue his/her recreational uses with proper setup and execution of ownership of managed forest land parcels. It is always best to begin the endeavor into the managed forest plan program with a seasoned attorney who knows the process and procedures for enrolling managed forest land and setting up the proper ownership entity(ies). In addition, one’s accountant should have some familiarity with Schedule F (which all farm operations file) and the MFL program. Finally, coordination with the forester in the county in which his/her property is located is critical to ensure the administrators who will be reviewing and managing the parcels are walking hand-in-hand with the owner.
To subscribe to email alerts from Axley Law Firm, click here.