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Old 04-01-2003, 09:27 AM
JimiFromMI
 
Posts: n/a
Default Schedule "T" Question to Foresters

Dear US Foresters:

As I understand it, a timber sale should be taxed by Uncle Sam only to the
extent of the growth of the trees since I've acquired the property (capital
gains). In practice, just how much of a burden to the forester (me) will it
be to calculate the capital gains of a timber sale on a property that has
not had a basis established since that purchase?

Specifically, the parcel of interest was purchased as primary residence in
1998. In spite of some personal hardships (everything is relative) I've
managed (so far) to retain the property despite my relocation and resist the
several "timber pimps" (thanks I think to JZ for the term) that have knocked
on my door.

Although book smart (and maybe newsgroup smart) with regard to forestry, I
am planning to seek out a private forester to help me manage my land.
Basically, I am asking the question: Is it a piece of cake for the forester
to calculate the capital gains on my trees since I've acquired the property
some years ago? How many years can pass before it does become a burden?
Should I expect the forester to understand what the hell I'm talking about
in the first place -- have they been educated on the tax code?

The only management activities that I've done is to girdle obvious cull
trees and remove the tops of previously felled trees for personal firewood
consumption. I did manage to prune the lower branches of some Black Walnut
and Cherry within the timber stands. All other management activities have
taken place on former agricultural fields (reforestation) or the ancient
fruit orchard -- anybody in need of some timber quality pear stumpage for
hand-crafted string instruments/whatever?

Please let me know what I should expect when seeking out a forester for my
land in West/Central Michigan.

Thanks,

DVK
--
My off-topic statement:
US Doctors = No Accountability


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Old 04-01-2003, 08:48 PM
Larry Caldwell
 
Posts: n/a
Default Schedule "T" Question to Foresters

In article ,
writes:
Dear US Foresters:

As I understand it, a timber sale should be taxed by Uncle Sam only to the
extent of the growth of the trees since I've acquired the property (capital
gains). In practice, just how much of a burden to the forester (me) will it
be to calculate the capital gains of a timber sale on a property that has
not had a basis established since that purchase?

Specifically, the parcel of interest was purchased as primary residence in
1998. In spite of some personal hardships (everything is relative) I've
managed (so far) to retain the property despite my relocation and resist the
several "timber pimps" (thanks I think to JZ for the term) that have knocked
on my door.


I'm not a forester, just a timber owner like you. The basis is an
appraisal, not a cruise. The basis depends on the value of the timber at
the time you purchased the land. The trees grow at a more or less steady
rate, but the price of timber fluctuates widely. During a period of
falling stumpage prices, the trees may be growing nicely but the value
may be shrinking.

I hired an accountant who keeps all that stuff straight for me.
Foresters usually don't know that much. Should you decide to sell the
property without logging it, there is no need to pay any capital gains
taxes at all. If you decide to log it as part of the sale, you may still
be able to shelter your capital gains, depending on how the contract is
written.

Should you hire a forester to recreate a 1998 basis, be sure to tell him
you want a top dollar appraisal. I don't know of any foresters
interested in filling the government's coffers. Value is based on market
conditions, scale and grade. Scaling is more or less a scientific
process, but market conditions vary depending on the day of the week, and
grade of a standing tree depends on X-ray vision.

--
http://home.teleport.com/~larryc
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Old 05-01-2003, 02:34 AM
Clear Cut
 
Posts: n/a
Default Schedule "T" Question to Foresters



In article ,
"JimiFromMI" wrote:

Dear US Foresters:

As I understand it, a timber sale should be taxed by Uncle Sam only to the
extent of the growth of the trees since

[SNIP]


A good source of information can be found at:

http://www.timbertax.org/

Spend some quality time with this site and its links.


Some types of timber sales are treated as capital gain, others as
ordinary income. In most cases capital gains is preferred. Timber sales
must be carefully structured to achieve capital gains according IRS code
Section 631(b).

A section 631(b) transaction is one in which you do not receive an
up-front lump-sum for the timber but are paid for the timber as it is
cut.* The pay as cut contract is referred to as a "disposal with an
economic interest retained."

Section 631b of the Internal Revenue Code (IRC) is of special interest
to forest landowners who manage their land. This section affords
capital gains treatment to the taxpayer who retains an economic interest
in the timber. The seller must retain legal title to the timber until
it is cut. The date of cutting is when the volume of the timber is
first accurately determined. The seller must be paid on a per unit cut
basis. When selling timber on the stump, your contract must state that
you retain title to the timber until it is scaled and that you are paid
on a per unit basis. A well-written contract is essential to
demonstrate a retained economic interest in the timber.

Depletion Allowance: As timber is cut, the original capital investment,
the basis of the timber, is reduced or depleted. Because the trees are
rarely all cut at the same time, the original cost must be modified to
give the adjusted basis. The adjusted basis is the original purchase
price of the timber adjusted for addition or deletion of the capital of
the property. The depletion allowance is deducted from timber sale
receipts in calculating taxable income. In this way the investment in
timber is recovered.

To use the depletion allowance, the cost basis of the timber must be
established. The cost basis is the fair market value of the timber at
the time of acquisition. The cost of land and improvements are carried
in a separate account. At the time of purchase or inheritance, the fair
market value of the property is allocated between the timber and the
land. These amounts can be estimated well after original acquisition;
however, there is a cost in making such determinations. For most
landowners, if the property was acquired more than 10 years ago then the
basis may have been so small that the cost of calculating the original
basis may exceed the gain in tax savings. The more recent the purchase,
the greater the justification of the expense.


Basically, I am asking the question: Is it a piece of cake for the forester
to calculate the capital gains on my trees since I've acquired the property
some years ago? How many years can pass before it does become a burden?
Should I expect the forester to understand what the hell I'm talking about
in the first place -- have they been educated on the tax code?


Some methods use average valuses for timer and land in your area -
comparible sales. The more detailed method requires an invnetlory of
your property, then a negative growth projection to the time of
purchase. Using historical sales data, a timber value can be calculated.

The only management activities that I've done is to girdle obvious cull
trees and remove the tops of previously felled trees for personal firewood
consumption.


In all dealings with the IRS, keep excellent records.
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Old 05-01-2003, 08:42 PM
Larry Caldwell
 
Posts: n/a
Default Schedule "T" Question to Foresters

In article ,
writes:

A good source of information can be found at:

http://www.timbertax.org/

Spend some quality time with this site and its links.


Sigh. I couldn't get it to come up. Is it normally down on weekends?

--
http://home.teleport.com/~larryc
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Old 05-01-2003, 08:52 PM
JimiFromMI
 
Posts: n/a
Default Schedule "T" Question to Foresters

--
My off-topic statement:
US Doctors = No Accountability
"Clear Cut" wrote in message
...


In article ,
"JimiFromMI" wrote:

Dear US Foresters:

As I understand it, a timber sale should be taxed by Uncle Sam only to

the
extent of the growth of the trees since

[SNIP]


A good source of information can be found at:

http://www.timbertax.org/



me-thinks the site is defunct -- or maybe its down for some reason.

Thanks,

DVK



Spend some quality time with this site and its links.


Some types of timber sales are treated as capital gain, others as
ordinary income. In most cases capital gains is preferred. Timber sales
must be carefully structured to achieve capital gains according IRS code
Section 631(b).

A section 631(b) transaction is one in which you do not receive an
up-front lump-sum for the timber but are paid for the timber as it is
cut. The pay as cut contract is referred to as a "disposal with an
economic interest retained."

Section 631b of the Internal Revenue Code (IRC) is of special interest
to forest landowners who manage their land. This section affords
capital gains treatment to the taxpayer who retains an economic interest
in the timber. The seller must retain legal title to the timber until
it is cut. The date of cutting is when the volume of the timber is
first accurately determined. The seller must be paid on a per unit cut
basis. When selling timber on the stump, your contract must state that
you retain title to the timber until it is scaled and that you are paid
on a per unit basis. A well-written contract is essential to
demonstrate a retained economic interest in the timber.

Depletion Allowance: As timber is cut, the original capital investment,
the basis of the timber, is reduced or depleted. Because the trees are
rarely all cut at the same time, the original cost must be modified to
give the adjusted basis. The adjusted basis is the original purchase
price of the timber adjusted for addition or deletion of the capital of
the property. The depletion allowance is deducted from timber sale
receipts in calculating taxable income. In this way the investment in
timber is recovered.

To use the depletion allowance, the cost basis of the timber must be
established. The cost basis is the fair market value of the timber at
the time of acquisition. The cost of land and improvements are carried
in a separate account. At the time of purchase or inheritance, the fair
market value of the property is allocated between the timber and the
land. These amounts can be estimated well after original acquisition;
however, there is a cost in making such determinations. For most
landowners, if the property was acquired more than 10 years ago then the
basis may have been so small that the cost of calculating the original
basis may exceed the gain in tax savings. The more recent the purchase,
the greater the justification of the expense.


Basically, I am asking the question: Is it a piece of cake for the

forester
to calculate the capital gains on my trees since I've acquired the

property
some years ago? How many years can pass before it does become a burden?
Should I expect the forester to understand what the hell I'm talking

about
in the first place -- have they been educated on the tax code?


Some methods use average valuses for timer and land in your area -
comparible sales. The more detailed method requires an invnetlory of
your property, then a negative growth projection to the time of
purchase. Using historical sales data, a timber value can be calculated.

The only management activities that I've done is to girdle obvious cull
trees and remove the tops of previously felled trees for personal

firewood
consumption.


In all dealings with the IRS, keep excellent records.





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Old 05-01-2003, 10:07 PM
Michael Hagen
 
Posts: n/a
Default Schedule "T" Question to Foresters

In article ,
says...
In article ,

writes:
Dear US Foresters:

As I understand it, a timber sale should be taxed by Uncle Sam only to the
extent of the growth of the trees since I've acquired the property (capital
gains). In practice, just how much of a burden to the forester (me) will it
be to calculate the capital gains of a timber sale on a property that has
not had a basis established since that purchase?

Specifically, the parcel of interest was purchased as primary residence in
1998. In spite of some personal hardships (everything is relative) I've
managed (so far) to retain the property despite my relocation and resist the
several "timber pimps" (thanks I think to JZ for the term) that have knocked
on my door.


I'm not a forester, just a timber owner like you. The basis is an
appraisal, not a cruise. The basis depends on the value of the timber at
the time you purchased the land. The trees grow at a more or less steady
rate, but the price of timber fluctuates widely. During a period of


That's a good description.

Get a new appraisal if you're selling timber or land - the market's the
pits right now and any appraisal done for current markets would probably
show a decline in value. OTOH- that might be what you want for current
capital gains.
Also- most foresters specialize. The really good appraisers do only
that and are worth what they charge.
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Old 05-01-2003, 11:28 PM
Larry Caldwell
 
Posts: n/a
Default Schedule "T" Question to Foresters

In article ,
writes:
http://www.timbertax.org/

me-thinks the site is defunct -- or maybe its down for some reason.


Evidently their default page has a problem, but the site is still up. I
did a Google search for timbertax, then selected the Google cached page
instead of the actual address. Once I got the cached page up, clicking
on links worked fine, even the ones hosted at timbertax.org.

--
http://home.teleport.com/~larryc
 
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