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Tax question about logging my own land

Started by tjdub, October 26, 2010, 02:34:55 PM

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tjdub


Maybe this isn't the best place to ask for tax advice, but it seems like many here are knowledgeable on the subject.

I lost several calves two weeks ago due to oak poisoning and want to recoup some of the loss out of the culprits.  Aside from salvaging logs from the 2 red oaks that fell down in my pasture (which seem to be the cause of the poisoning), I want to take another 4 to 5 large oaks out of the pasture that should have veneer logs (if they aren't hollow).   Can I just consider the sale of the logs as part of my farm income for tax purposes or does it have to be more complicated than that (capital gains, etc.)?  This is in Minnesota, if it matters.

Jeff

Odds of the trees being veneer if they are coming off pastured land is very very slim.
Just call me the midget doctor.
Forestry Forum Founder and Chief Cook and Bottle Washer.

Commercial circle sawmill sawyer in a past life for 25yrs.
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Gary_C

It's to your advantage for the sale of logs from your own property to be classified as the sale of a capital asset. That way you are not subject to deductions for social security and medicare on the sale. Plus capital gains are taxed at a much lower rate.

But yes, it is more complicated.

For more on the tax treatment of timber sales, check out this:

https://forestryforum.com/board/index.php/topic,39640.0.html

I think Ron also posted a good updated link for some more tax info on timber sales in that topic.

Also on the subject of poisioning, yes it is very possible for the acorns off the oak trees to cause problems in cattle. Most all dairy farmers around here will get the animals off the pasture before the acorns fall.
Never take life seriously. Nobody gets out alive anyway.

Jeff

Just call me the midget doctor.
Forestry Forum Founder and Chief Cook and Bottle Washer.

Commercial circle sawmill sawyer in a past life for 25yrs.
Ezekiel 22:30

mad murdock

In our region (Pacific NW) there are small woodlands groups, which have members of said groups that are tax professionals who specialize in small woodland owners, I would think that similar groups exists in most states that have timber tracts owned and managed by individual/family owners.  Maybe contact the American Tree Farm Assoc. or some other such group for direction on where to get the advice?  I know that for our family in Oregon, we have hooked up with one of those accountants (CPA) types who does this type of specialization, and she has saved us untold $$$$$$ (thousands) over the last several years that we have turned the tax stuff over to her.
Turbosawmill M6 (now M8) Warrior Ultra liteweight, Granberg Alaskan III, lots of saws-gas powered and human powered :D

tjdub

Quote from: Jeff on October 26, 2010, 03:42:26 PM
Odds of the trees being veneer if they are coming off pastured land is very very slim.

Not to mention that the odds of anything going right for me seem very very slim this year :)

tjdub

Quote from: Jeff on October 26, 2010, 03:48:49 PM
There is also a national timber tax website.  http://timbertax.org/

That's a great site.  According to their little guide, I would be allowed to pay capital gains tax (20%) instead of income tax.  However, I would be much better off if I could just include the log sales on my Schedule F (Profit or Loss from Farming) income tax form since I just buried about $4,000 worth of potential 2011 farm income.  Income tax on zero dollars of income is zero dollars :)  I guess the real question is whether or not I'm allowed to lump the log sales in with my livestock sales like that.

Gary_C

Quote from: tjdub on October 26, 2010, 05:39:48 PM
  However, I would be much better off if I could just include the log sales on my Schedule F (Profit or Loss from Farming) income tax form since I just buried about $4,000 worth of potential 2011 farm income.  Income tax on zero dollars of income is zero dollars :)  I guess the real question is whether or not I'm allowed to lump the log sales in with my livestock sales like that.

Since I was a dairy farmer, I know all too well the pain of burying (or paying to dispose of) livestock assets. However your only tax loss on that is in the feed or other cash costs you have in the deceased animals. The IRS could care less about potential income. So if those log sales create any positive income numbers, they will incur some SS and medicare obligations.

However if the log sales income does not trigger any positive income numbers on Sch F, you are in a sort of grey area and the only advice would be to do what you think is right and make sure you report that income somewhere so you are not failing to report it altogether. I do not know of any penalties for reporting income in the wrong place, if there is such a rule and I do not think one exists. But if you use an accountant to prepare your return, they are obligated to use "standard accounting proceedures" or the IRS will penalize them for failing to follow their rules.   :)

Never take life seriously. Nobody gets out alive anyway.

Ron Scott

You might want to give Susan Metcalfe a call and discuss your situation with her. She specializes in timber taxes.

http://www.metcalfeforestry.com/index.php
~Ron

tjdub

Quote from: Gary_C on October 26, 2010, 06:24:47 PM
But if you use an accountant to prepare your return, they are obligated to use "standard accounting proceedures" or the IRS will penalize them for failing to follow their rules.   :)

Thanks Gary.

I've been getting by without an accountant, but I suppose it may be worth professional help with this one if I can't find anything clear in the Schedule F instructions.

Gary_C

Quote from: tjdub on October 26, 2010, 09:19:26 PM
I've been getting by without an accountant, but I suppose it may be worth professional help with this one if I can't find anything clear in the Schedule F instructions.

You are wasting time looking as the rules are not there.

What I am saying to you, without giving you tax advice is if you go to a tax pro, they are obligated to follow the IRS "wishes" which will be to report logging and timber sales and expenses separate from your farm Schedule F. And it would be good accounting practice to account for farming separately from any forestry activities if you did significant amounts of both activities. But it will require you file both a Schedule F for the farm operations along with all the associated forms and a Schedule C for the forestry operations with all the associated forms. And that's a lot of paperwork.

But there is nothing specifically that says you have to keep the operations separate and there is a good argument for combining them as both farming and forestry fall under the USDA. Plus for small operations it can be an accounting nightmare to keep track of machinery hours, fuel, etc separately for both logging and farming.

And I have had this discussion with a pair of IRS agents at a logging show and though they were not pleased with my assesment, they agreed there are no rules that make you do it either way. And we agreed that it would give you a clearer picture of each operations profitability with separate accounting, but that comes at a price.

So do it any way you want but just remember an accountant will be obligated by the rope of "standard accounting practices" that the IRS keeps around their neck to do it their way and the only rope you have around your neck is to account for all your income some way.

And there is the issue of capital gains vs. ordinary income. On either schedule F or schedule C, you can not report ordinary income as capital gains but you can report capital gains as ordinary income. You can potentially pay more taxes by reporting capital gains as ordinary income so the IRS will accept your generous donations. Just don't try it the other way around.
Never take life seriously. Nobody gets out alive anyway.

tjdub

Quote from: Gary_C on October 27, 2010, 12:40:37 AM
What I am saying to you, without giving you tax advice is if you go to a tax pro, they are obligated to follow the IRS "wishes" which will be to report logging and timber sales and expenses separate from your farm Schedule F.

I see what you're saying now Gary.  Thanks for the info and explanation.

underhi2p

Here is an excellent site for tax treatment of timber sales:

http://www.timbertax.org/

Gary_C

Quote from: underhi2p on October 27, 2010, 08:54:59 PM
Here is an excellent site for tax treatment of timber sales:

http://www.timbertax.org/

You are absolutely right, that site is a treasure of tax information and everyone involved in forestry should read that site and bookmark it for future reference.

And welcome to the forum. It's perfectly alright to introduce yourself and tell us about any special interests you have including tax expertise. We need someone to help us through these tax laws and rules.  ;D
Never take life seriously. Nobody gets out alive anyway.

northwoods1

Quote from: Jeff on October 26, 2010, 03:42:26 PM
Odds of the trees being veneer if they are coming off pastured land is very very slim.

I'd say a little less than slim :o there is a lot of territory between hollow and veneer :), but your talking about cutting how many trees? 6 or 7 oak trees? Your not going to have much income from that to think about are you ???
Re. the oak leaf poisoning do you have a postive diagnosis? If not i'd be wondering about other possibilities. I've had quite a bit of experience with large animal medicine, my wife and I owned/operated a veterinary clinic for 14 yrs., and I can tell you it is quite rare. So many plants can be toxic to cattle or equine but cases of poisoning are actually quite rare most of the time the animals just know what they can or can't eat unless they don't have anything else to eat then that is a different matter. But an example is maple leaves are toxic to horses, just as toxic as oak are to cattle, but I would never go around cutting all the maples from around my pastures.

DanG

There are also incidents where toxins that are harmless to adult animals can be passed to the youngsters in their mother's milk.  Perhaps you could just make sure that all calving is done in a different place.

As mentioned earlier, those few trees are unlikely to have a lot of impact on your taxes.  You could always have them cut into lumber for use around your farm, and deduct the sawing expense. 
"I don't feel like an old man.  I feel like a young man who has something wrong with him."  Dick Cavett
"Beat not thy sword into a plowshare, rather beat the sword of thine enemy into a plowshare."

caveman

Are all oaks poisonous to cattle?  We have live oaks, water oaks, and laurel oaks on most of the pastures in my area and the leaves have been eaten by cattle as high as they can reach.  I have never known of any to suffer any ill effects from eating them.
Caveman

Gary_C

Here are three articles on the subject.

Oak Toxicity

Poisonous Plant Research, Oak

Red Oak Toxicity

Even though the three articles are specific to area and type of Oak, the tannins in all Oaks seem to be the problem. And the toxicity seems to depend on season and amounts consumed.

In my area where there is predominately Bur Oak, most of the farmers that pastured dairy cattle in oak stands would say you had to get the cows off the pasture before the acorns dropped or they would quit milking.

So from what I read, as long as the cattle have plenty of other forage to eat, they will not consume enough oak material to show signs of toxicity. But even in smaller quantities the tannins and phenols in oak cannot be good for cattle.
Never take life seriously. Nobody gets out alive anyway.

tjdub

Quote from: northwoods1 on October 30, 2010, 08:26:56 AM
Your not going to have much income from that to think about are you ???

No, I've never had that problem yet :), but Uncle Sam thinks about ever dollar.  I would rather not pay taxes on any dollar I don't have to, and if I do, I would rather not spend hours figuring out the additional tax forms just for the privilege :)

Quote from: northwoods1 on October 30, 2010, 08:26:56 AM
Re. the oak leaf poisoning do you have a postive diagnosis? If not i'd be wondering about other possibilities. I've had quite a bit of experience with large animal medicine, my wife and I owned/operated a veterinary clinic for 14 yrs., and I can tell you it is quite rare. So many plants can be toxic to cattle or equine but cases of poisoning are actually quite rare most of the time the animals just know what they can or can't eat unless they don't have anything else to eat then that is a different matter. But an example is maple leaves are toxic to horses, just as toxic as oak are to cattle, but I would never go around cutting all the maples from around my pastures.

The toxicology report came back and it didn't find any evidence of oak poisoning.  The vet also ruled out blackleg or anything infectious, but can't give me anything definite on what poisoned them.   The cattle had (poor) hay available, but were still preferring pasture.   I later found that some cattle broke out of the pasture into a little finger of wasteland and grazed it, so whatever killed them was most likely growing there.  I couldn't find any nightshade, snakeroot, or horsetail, but all of those seem like they could be potential causes.  Also, this happened right after the first frost, so it could have even been a non-poisonous plant that had prussic acid content.   Anyway, all this probably pretty off-topic for the logging message board :)

treefarmer87

i get taxed for every load of sawlogs but not pulpwood. i made $41,000 last year thinning my farm and didnt even get to half of the wood yet. i only paid $1000 for taxes :) :) :)
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DRB

Quote from: treefarmer87 on November 01, 2010, 06:35:20 PM
i get taxed for every load of sawlogs but not pulpwood. i made $41,000 last year thinning my farm and didnt even get to half of the wood yet. i only paid $1000 for taxes :) :) :)

I feel it nasty that you had to pay $1000 in taxes.  I bet you earned every dollar of that $41,000 thinning small trees for pulp is hard work and $41,000 is not much money these days barely pays for one year in college. 

In Northern Min where my brother lives forest land pays you.  The state gives you a tax rebate incentive to keep it in forest land and it is often more incentive then property tax. 
Of course you are talking about income tax the most counter productive of all taxes. We always just included log sales as part of the farm operation.  Never amounted to enough to make it worth while trying some other method.    I know my brother bought 120 acres of land in Min for just under $100K with timber on it and when he sold some of the the timber for $50K it was less then he payed for the land so he paid no income taxes on it.  Now should he sell the land for more then $50K he will be forced to pay capital gains tax on the amount over $50K since it reduced his investment to about $50K.   
Pasture and timber do not mix well. The animals compact the ground and injure the roots resulting in a many hollow trees and they prevent regeneration. I would take all the trees out of any pasture I had livestock in and I would take any livestock out of any forest land I wanted to grow timber in. I would get rid of the trees in your pasture ASAP regardless of what killed the calves. Just my opinion I no longer own much land or have any livestock.

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