Tax exemptions. I am only qualified, slightly, to comment on state taxes. The others have said to talk to a tax consultant or accountent for federal taxes, and I fully agree. However, on state taxes, and on replanting.
Ad Valorum taxes in Texas are based on soils type (productivity), stand composition (Pine, Hardwood, or Mixed), timber value (based on an average of the previous 5 years) and the cap rate, or capitalization rate. There are a few other minor items, but they are fairly stable and not subject to field identification. The lowest type tax is on Type 3 hard wood, the highest is Type 1 Pine. All of this is drawn up in a written plan for the land owner and submitted to the tax assesment office. There have been initiated a few changes in the past year. In the past, pasture has been taxed at either base value of $100 or $145 per acre, the cheapest land tax in Texas. In the past year, the conversion of pasture to timber has allowed a 15 year tax exemption by leaving it at the pasture rate, the idea being there is no value produce in the first 15 years of plantation management. There is a ten year exemption of conversion of a site to timber management from previously abandoned sites, again at pasture level. There is also a recent law where sales tax is exempted on items used for the production of agriculture products.
For the best tax exemption on state ad valorum tax, get the written managment plan, history, maps, etc on the property. A forester can write it, or you can if you have a little knowledge of timber managment.
Be warned that the cap rate has fallen to it's lowest point since this method of taxation was conceived, and that the base value for #1 pine may exceed the real estate fair market value of the land per acre.
One writer noted that pay as cut vs lump sum has different tax treatments. True. But with the state of logging in Texas, and I suspect the south, being what it is, lump sum more or less guarentees that you'll get your fair value, IF, you have had the timber marked and marketed by a professional. Pay as cut has the limitation of not know what was cut, how it was margeted, or who it was sold to at the mill. That puts far to much trust in some loggers.
Also, there is still some cost share available in Texas for replanting. The cost share is considered income for fed tax purposes, but it reduces the cost of planting for some land owners. Check with the local Texas Forest Service Office, or a consulting forester, for that.
By the way, where in Texas are you?
