The objective of the study was to determine how various capital gains tax structures affect decisions to invest in new forest investments. These effects were measured by changes in the after-tax present values of bare land under each tax structure. The three capital gains tax structures modeled were: the current federal income tax law without basis indexing, the current federal income tax law with basis indexing, and the accrued income tax with indexing. Other things equal, the direction of effects on present values of bare land of capital gains tax structures and the other factors in the model was the same for White pine Christmas trees and Douglas fir timber. Highest present values occurred with basis indexing and lowest present values were with the accrued income tax structure, in all possible combinations of the above variables. Higher present values with basis indexing were due to tax savings. Tax saving from basis indexing per dollar of cost basis increases, reaches a maximum, then decreases as the payoff period lengthens, at a given inflation rate, with all other things equal. The payoff period that maximizes tax savings per dollar of cost basis decreases, as real interest rates increase. When the capital gains tax rate is 34% and inflation rate is 5%, and when real interest rates range from 3% to 9%, the payoff period with maximum tax savings ranges from 20 to 10 years. Since most forest investments have rotations longer than 20 years, this result implies that basis indexing will probably not affect decisions about new forest investments very much. It will also not affect the timing of gains realization for capital assets, not necessarily forestry in nature only, that had already been held for longer than 20 years. Two equity criteria were considered in the study. The first criterion requires the tax to be neutral with respect to allocation of land to different uses. The second criterion requires capital gains recipients to pay, at investment maturity and with other things equal, taxes equal to the sum of annual taxes on increases in asset value (accrued income) accumulated with interest. The study showed that, without inflation, the realized income tax (the current federal income tax) is neutral with respect to allocation of land to uses with different rotations because the tax reduces the bid prices for land uses with different rotations by equal percentages, other things equal. However, with inflation, the results suggest that basis indexing is needed in order to maintain the tax’s neutrality with respect to allocation of land to uses with different rotations. Under the second criterion, a forestry example was compared with a bank account, both with equal value growth rates. It showed that taxes paid on realized capital gains at investment maturity are lower than the sum of annual taxes on accrued income accumulated with interest, given the same tax rate. Thus, the current federal income tax, which taxes capital gains upon realization, does not meet the second equity criterion. Based on this criterion, the tax favors assets that yield capital gains over assets with annual incomes. In order to meet the second equity criterion, realized capital gains should pay taxes at the ERITAX rate. The ERITAX rate, when applied to realized capital gains, gives tax revenues equal to accrued income taxes accumulated with interest to investment maturity. However, when the annual accrued income tax rate is high, or when the rotation is long, or when the timber value growth rate is low relative to the interest rate, the ERITAX rate can exceed 100% of the capital gains, thus driving some bare land values below values in alternative uses. This result is consistent with the finding that the accrued income tax is non-neutral with respect to allocation of land to different uses and is biased against land uses with long payoff periods, given the same establishment costs. Thus, when the second equity criterion is met, the tax becomes biased against land uses with long rotations. These results indicate that none of the taxes modeled can meet the two equity criteria simultaneously. Even so, among forest investments, the current federal income tax with basis indexing is the most desirable because it is least likely to distort allocation of land to forestry. / Ph. D.