The division of capital assets when property is acquired is necessary in order to take full advantage of IRS tax codes. A basis should be established in allocate the proper value to capital assets including the timber obtained as the result of purchasing property. This is really important when you might sell some or all of the timber in subsequent years. If the basis has never been established for the timber, volume and value should be discounted to the year in which the property was acquired.
A timber appraisal conducted by EnviroFor, LLC. can assist landowner(s) in the establishment of the timber basis.
Timber sold after property has been held for 12 months qualifies for capital gain tax treatment. Currently, the maximum tax associated with a qualifying timber sale is 15% of the net income received by the landowner(s) for the timber in the year payment was received. The appropriate capital gain percentage to apply is calculated based on the landowner(s) ordinary income tax rate for that tax year. Timber sold prior to being held for 12 months is considered as ordinary income and subject to the landowner(s) ordinary tax rate for that tax year. Reporting the on the capital gain tax forms will eliminate payment of social security tax on the timber sale income. It will also keep the timber sale income from potentially affecting retirees social security payments.
EnviroFor, LLC. assists clients in determining the taxable portion of a timber sale as part of the standard timber sale process conducted for clients.
Expenses associated with ownership of capital assets such as timber and timberland normally qualify as either deductions against capital income or capitalized to depreciate the investment expense over the usable life of the investment. Expenses like timber sale commissions paid to EnviroFor, LLC. are fully deductable as an expense against the gross price recieved by the landowner(s) for timber. This treatment will lessen the amount of tax that a landowner(s) must pay on the income received from a timber sale.
Envirofor, LLC. strongly recommends that you speak with qualified real estate, tax, and legal advisors before purchasing property. Values, tax considerations, and legal issues are subject to change. This document is for informational purposes only and in no way constitutes advice on matters regarding exact tax treatment of any timber sale.
Specific timber tax information may also be found at the national timber tax website;