taxes on timber sale

[huntfoolgary]

I would like to know how to figure what taxes must be paid on a timber sale? and if i should hire a forester to manage my timber sale of 20 acers of 25 year old red pine in need of 1st thining?  and if so where can I find a forester for my area(leroy mi,osceola co.)

[Jeff]

Welcome!
Your in luck huntfoolgary, (Which part ya want for short? I'll guess Gary ;) )

Member Ron Scott works that area. One of the most respected foresters in the state. I am sure he will be here soon to answer your questions. I attended a timber tax seminar last winter put on by MSU extension and have quite a bit of info on hand for you. I'll wait to see what Ron Scott has to say.

While your waiting, make yerself ta home and look around!

[Ron Scott]

Gary,

Yes, you should definetly have a professional Consulting Forester look at your pine stand prior to its first thinning and proposed future management. 25 year old pine might be a little early for harvest, but then it depends on growth rate, soil type, ecological landscape etc. It also needs to be economical and have suitable access. Is it at 6"-8" diameter at breast height and make at least 2 pulpwood sticks (100"/stick) ?

Taxes accessed to a timber harvest may depend upon when you purchased the property and if you have set up a timber basis and depletion account prior to harvest. You may deduct any costs to you incurred for the harvest such as the cost of a surveyor for a registered land line survey, road access work, management costs for a professional Consulting Forester etc.

Check the Tax Links on the Forum for more detailed Timber Tax information. There have also been a number of Timber Tax Information sessions put on by the MSU Extension Service. I believe those held in the local area have been recently completed for this year, but Timber Tax Information is also available from the MSU Extension. Keep a watch on the Forum's Forestry Education Thread for Training,   Workshops, Meetings etc.

You should contact Osceola/Lake Conservation District Forester Rick Lucas or a professional Consulting Forester to look at your pine for a management recommendation.

Also, feel free to call me. I have a number of jobs going in Osceola County. Where are you located? One red pine harvest about to finish that you may want to look at is on the Cay Newhouse property at the intersection of 20 Mile road & 140th Avenue road intersection. It should be done this week with wood decked on the landing awaiting hauling until road restrictions are off.

Feel free to contact me at (231) 775-6334 if you wish further information or would like me to look at your pine. I provide references and harvest sites to look at if you wish.

[huntfoolgary]

Ron, I did have rick lucas come out about 2 years ago,he said the pines would need thining in about 2yrs!  I heard some talk that a couple of neibours of mine are planing to also have there pines thinned. one owns 40 acers of pines the other about 10 or so.it seems the pines are starting to prune themselves. they could be 6-8" at breast height.your wecome to come out and have a look.I live in leroy near rose lake the property is located in sec. 6 of rose lake township. I bought the property in  aug. 1994. last weekend I went to a deer hunting seminar in evart,mi thats where I last talked to rick and bought a video on land management and also got the ad dress for this site.I know where the newhouse property is located it used to be or still is CFR land. I will take a look at it this coming weekend. my trees are almost identical to those on the newhouse prop. as far as i can tell.will it cost me anything for you to take a look? my ph# is (231)768-4081 thanks Gary Krantz

[Ron Scott]

Gary,

I just did a timber appraisal on a parcel in section 21 of Rose Lake Township. To bad I didn't know where you were located as your property was nearby. I'll give you a call to schedule a time to look at your timber. There is no charge for a "look and some professional advice", especially when I'm in Osceola County so much.

You might want to contact your neighbors if they haven't already sold their pine. A composite bid sale might be made to benefit all of you.

There are also two units of the same Cay Newhouse pine sale in Burdell Township, section 34, south side of Pine Road and in section 33, west of 210 th avenue, and north of 18 mile road south of Newhouse Lake.

These units were just completed. You will see wood decked pending hauling when road restrictions come off. Pine Tech is currently working in Unit 2 south of 140th Avenue and 20 Mile road intersection, west side. Just be careful if you go in the stand as the tracked Timco processor may be working with Fabtec skidder going. Probably not this week-end though.
 

[Jeff]

Gary this is a post I made last year on (gasp) another site when someone was asking a question about timber tax. I had some info fresh in my head because of the seminar I was at that same week.

OIne thing you need to know about if you don't, in fact HAVE to know about, is what's called "Timber Basis".

Timber basis is the value (and volume) of the timber at the point in time you aquired the property. Your taxes are computed on the difference between the value at purchase, and the value(-allowed expenses) of timber at time of sale.

Some points to consider on a timber sale:

1. Was the sale a clear cut? If not, you are only taxed on the value of the volume you harvested. This amount is then deducted from your basis,(the starting value of your timber.)If it was, you will be allowed to deduct the entire amount of your basis + allowed expenses. If the sale was a clear cut, your basis remaining is 0, and cannot be regained until the property is sold.

2.Type of payment. Were you payed lump sum? were you payed in installments?

3. Do not ignore the sale and think that the tax responsibility will go away. You are ahead of the game by understanding there IS a tax responsibility. Some people never think of that. Hopefully it was a responsible logger, that informed you of this as you planned your sale. The IRS may never target you from your lack of reporting, but they will find you if they ever audit the mill or logger that bought the timber. The paper trail leads to you. The bottom line is, you may or may not owe any tax, but you are still required to report the sale.

I have some workshop information here that might answer specific questions, but a better bet would be to go to www.timberbuyer.net and use the ask the forester resource, or the forum. The foresters on duty there deal with these questions everyday and can help answer most questions.

Another thought on timber tax. I was told by the a Michigan State University Doctor of Forestry, that there are only (4 FOUR!) People that work for the IRS that work in timber tax.

You need an accountant that is educated in the timber tax laws to help, because it might mean the difference in thousands of dollars. Also remember that by initially using a forester, he may pay for himself just by clueing you into the tax information you need.

Hope this helps

Jeff

[woodmills1]

the IRS has a form for timber tax reporting, and guess what, it is form T.  the instructions are pretty clear, but the first year paperwork is not simple.  If your cut is already done then some of the leg work involved can be extrapolated from the volumes harvested.  at the time of purchase, the cost of the property is to be divided between the value of the land and the value of the trees.  land can not be depreciated, but the part of the purchase allocated to the value of the trees, while not depreciated, is recoverable under what is called a depletion account. the money you made on the sale is reported as income but can be reduced by the amount of dollars the removed trees represent in your depletion account.  this is probably clear as mud so here is an example.

say cutterjoe buys a parcel for $100,000 and allocates it 40% to the land and 60% for the trees.  he has a depletion account worth $60,000.  he must then do cruising or other sampling to establish the volume of lumber or other marketable products on his parcel.  to make it easy lets say he estimates 2400 cord of firewood and no other products.  he would then divide the $60,000 by the 2400 cord to get $25 per cord.  every time  he sold a cord of fire wood he can shelter $25 dollars of the actual income from the sale.  that is he reports his  sale price as income, but deducts $25 on the line(line 12 schedule C) for reporting depletion.

there are other requirements such as factoring growth or losses due to disasters. hope this helps.

[Jeff]

If you are a timberland owner it is wise to have a forester come in and establish your basis so you can determine depletion after a sale. You can't just alocate a value. You must have an inventory from time of aquisition to determine the values.

I think Ron can explain this better.

[woodmills1]

yes, i agree the allocation must be sound.  i didn' mean just make them up, i should have said establish.  for myself i used the going cost of raw land at the time of my purchase along with comparable land sales in the area. I then did plot samples to find out my volumes.

[Ron Scott]

Yes, one should have an appraisal of their timber done "soon" after the time of property purchase to establish the timber "basis" to set up the depletion account for their timber.

The sooner after property purchase the better, but IRS does allow one to go back in time some, but it gets much more difficult after about 10 years, more costly for a forester to do also. IRS frowns if you try to establish the "basis"say for 30 years back though.

The timber cruise and appraisal should be done by a certified forester who can certify the appraisal (put their "stamp" on it). This is usually required by IRS should you get audited.

IRS doesn't tell you much if anything about how to handle your taxes for timber. Yes, there is a Form-T, the Timber Tax Form to use for this reporting. It is always good to check with an accountant knowledgeable in timber taxes, the entension service, a certified forester, or at leasrt the Links here on the Forum, some good information.

There is also a difference as to whether you sell your timber by "lump sum" or "scaled sale". A "lump sum" is handeled as capital gains and a "scaled sale" can be depleted from your depletion account. There is an effort going on now by Woodland Owners etc. to handle both types of sales the same way.

This gets very confusing, so best to check with a timber tax expert for your particular situation. The Purdue University Link on The Forum is worth looking at.

Paying a certified forester to do a timber volume cruise and appraisal of "all" the timber on the property at the time of  purchase can save you many $$$ in taxes and well worth the forester's fee on the front end to do so.

[L. Wakefield]

   I went to forum links directory and typed in purdue university and got zilch. what'd I do wrong?  lw

[Jeff]

Did you typo purdue? I just tried and got it.

[L. Wakefield]

   No typo. It went ok with just 'purdue', and prob would with 'purdue u', but it wasn't listed as 'purdue university' which is what I tried. I have it now.    lw

[Thorus]

A couple follow up questions on the taxes:

After an initial cruise to establish your basis, do you need to get another timber cruise every year and keep filing updated info on the IRS form T?

If you don't need a new cruise every year, do you have to file the Form T with estimates?  Or after an initial cruise to establish the basis, do you just revise the form T when you have a sale?

I'm a new member to the forum here, and brand new to being a forest landowner as well, so thanks in advance for your help.

Regards,
Steve B.

[Ron Scott]

Establish you timber basis at time of property purchase or as soon thereafter. This is a timber appraisal that is done once at that time to establish your timber basis and depletion account.

It's not done every year unless you have a change in your land and timber status or transfer or gift the property.You are separating yout timber value from your land and any building values.

When you sell any timber, you deduct it from your depletion account established by your initial timber basis unless your sell value exceeeds the basis. Then you have a capital gain.

Report on Form T only when you have a timber sale or cost activity to report. Scaled sales are deducted from your depletion account, but lump sales are handled as capital gains. At least for now, until the tax law changes which some are trying to get done to handle lump sum sales the same as they are the more efficient and effective for the landowner.

All costs such as land line survey, consultant fees, road costs, etc are costs to be deducted from your timber income if needed to sell and harvest the timber.

I'm far from a tax expert so best to check with an accountant knowlegeable on timber taxes for your specific situation. Also check the Purdue University Site listed in the Forum links and your state Extension service.

Keep good records of all incomes and costs related to your timber!
  

[Ron Scott]

New IRS Rule.

Lump-sum timber sales are now required to be reported on form 1099-S. That's why timber purchasers are now asking for your tax ID number. For more information, consult your accountant or visit thetimber tax website at www.timbertax.org.

The E-Forester