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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 |
#3
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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. |
#4
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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 |
#5
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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. |
#6
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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. |
#7
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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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