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Author Topic: Retroactive Timber Basis Assessment  (Read 3261 times)

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Offline Brian Beauchamp

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Retroactive Timber Basis Assessment
« on: December 30, 2007, 12:55:57 am »
Do any of you foresters know where I can find the 'official' guidelines for this?

Offline SwampDonkey

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Re: Retroactive Timber Basis Assessment
« Reply #1 on: December 30, 2007, 06:43:01 am »
Never heard of it. Is it something based on a management plan where the local taxing authority verifies work done under a tax relief program?

Pre-commercial thinning pays off. :)

'If she wants to play lumberjack, she's going to have to learn to handle her end of the log.'
Dirty Harry

Offline Ron Wenrich

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Re: Retroactive Timber Basis Assessment
« Reply #2 on: December 30, 2007, 07:41:52 am »
Its figuring out the timber value at the time of purchase.  It is needed for tax purposes.  You only pay taxes on the value that's been grown, while the rest is asset liquidation.

I've done a few of those several years ago.  A lot depends on species and how long they've owned it.  If its 20 years or better, it probably won't be much of a tax break.  Same goes for low valued species that have now become high valued species.  Red oak and ash have declined in value, while sugar maple and hickory have increased.  And, the smaller trees also had lower value due to log value.  Smaller trees are lower grade.  Pine may be different.

Here's a timber tax organization that might give you some 'official' guidelines:

http://www.timbertax.org/
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Offline Texas Ranger

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Re: Retroactive Timber Basis Assessment
« Reply #3 on: December 30, 2007, 09:30:20 am »
Like Ron, I have done a few, it is fairly straight forward when dealing with Southern Yellow Pine, what with growth tables and an increment borer.  Hardwoods are much more difficult.
The Ranger, home of Texas Forestry

Offline Ron Scott

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Re: Retroactive Timber Basis Assessment
« Reply #4 on: December 30, 2007, 10:12:00 am »
I've done several of these over the years.

If a timber basis wasn't determined at the time of acquisition, then you will have to estimate both the fair market value (FMV) of the timber and the fair market value of the bare land at the time of acquisition.

Then the total  sales price or total inherited price must be apportioned between the timber and the land seperately. The IRS does not allow the allocation of the full basis to the timber even if the timber is worth more than the total purchase price of the property.

For retroactive basis calculations, you will need to search records in the area with similar timber types and volumes for previous years or find comparable sales. I keep timber product sale value records for years back for this very purpose which makes such calculations much easier if you have price data for the period you need to recalulate to.

Some tools that may be useful in estimating timber volume at an earlier time are old aerial photographs, increment cores can be used to estimate growth, especially for most of the valuable trees in the stand. Experts with the US Forest Service recommend the use of stand-level and yield equations appropriate to the region to "ungrow" the stand. This approach is most effective if the difference between acquisition and sales dates is less than 10 to 20 years.

The IRS may become a little "owly" if one goes back over 20-30 years in a timber basis determination.

The national timber tax web site that Ron W. referenced should be reviewed. You might also find the North Central Regional Publication No. 609 by Karen Potter-Witter and Carl W. Ram (now deceased), Michigan State University Department of Forestry helpful. 

~Ron

Offline Brian Beauchamp

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Re: Retroactive Timber Basis Assessment
« Reply #5 on: January 11, 2008, 06:14:01 pm »
Thanks for the responses everyone.

Ron...or anyone else that would like to chime in...do you think it would be an acceptable practice, since public records of sales/timber values here in NE Oklahoma are scarce, to have the buyer give an estimated bf amount by species and product class they would have given at the time the landowner obtained the property, assuming that the buyer was in business at the time so I could apply those numbers to my volume estimates? Seems like a fair-enough way of doing it and it also seems like it would relieve me of the 'monkey on my back' of having to justify the dollar amounts should the question arise. Most of the landowners I deal with are coming into the property within 5 years or less, so I believe getting a good handle on being able to assess timber basis effectively and legitimately is the key to my success. 

Offline Ron Scott

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Re: Retroactive Timber Basis Assessment
« Reply #6 on: January 11, 2008, 07:59:58 pm »
That should be acceptable, if you can get documented records or statements of timber values from established timber buyers who procured timber at the time you need to establish the basis for.

You can also obtain current prices and volumes and then discount them back to the year that you need to establish the basis for.

Here's another reference that may be of help.

http://forest.wisc.edu/extension/Publications/71.pdf
~Ron

Offline Brian Beauchamp

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Re: Retroactive Timber Basis Assessment
« Reply #7 on: January 11, 2008, 08:28:19 pm »
Thanks, Ron. I figured discounting the prices back to the date of beginning ownership would work as well, but the word from a few people is that prices have actually dropped some, so I want to give every advantage I can to my landowners. Thanks for the link, too...I'll check that out.

Offline SwampDonkey

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Re: Retroactive Timber Basis Assessment
« Reply #8 on: January 11, 2008, 08:34:44 pm »
They sure have dropped here, so haven't the markets.

Pre-commercial thinning pays off. :)

'If she wants to play lumberjack, she's going to have to learn to handle her end of the log.'
Dirty Harry

Offline Gary_C

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Re: Retroactive Timber Basis Assessment
« Reply #9 on: January 11, 2008, 11:39:24 pm »
Brian

Last year I went to a one day training session on federal taxation issues for loggers. The instructor went over basis in detail. Ron is exactly right in what he has told you about allocating basis, but there is one very important fact that is not well known pertaining to basis. From the workshop:

a) Basis in property purchased at a lump sum price can be allocated to the various attributes of the property
     i) Land - can be neither depreciated, ammortized or depleted.
     ii) Timber - can be depleted as the timber is sold
     iii) Minerals - can be depleted as sold
     iv) Improvements - if used for a business purpose or as a rental for profit, may be depreciated

b) No requirement to allocate basis. All basis can, by default, be allocated to land if so desired.


Section b) is very important and something the IRS will never voluntarily tell you. What this means is the tax code contains absolutely no requirements or rules for allocating basis. The tax courts have ruled that in the absence of actual rules, by default there are no rules. They (IRS) will tell you the "accepted accounting practices" and have rules for setting up depletion accounts and sub accounts if you so choose.

So when you are looking for the accepted practices, just remember there are no hard and fast rules. The IRS and most all tax accountants will quote you these accepted practices, but they are not tax law backed.

The book I have is 57 pages, but I have no way to scan it to send to you. I could fax some pages to you if you send me an IM.

 
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Offline Brian Beauchamp

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Re: Retroactive Timber Basis Assessment
« Reply #10 on: January 17, 2008, 01:56:35 am »
Thanks, Gary. That insight is very much appreciated. It's funny how imposing the IRS can be even when they have no backing to do so. I'll pm you my fax #.