Timber Tax Issues.

[dmccarty]

This is for Gordon and other Forester types....

I timbered some land last year and I'm trying to figure out the tax implications. Heck, I have been trying to figure out the tax implications for a year!

My forester says I don't owe taxes since I bought the land/timber in the same year I logged the property. I can see how this MIGHT happen I just don't see how it applies to me specifically. I have talked to my forester's CPA and he sent me some forms but they are for business timber production. I have talked to CPA's but when I mention timber they don't have a clue. I know more than they do. Not a good thing.

I have read the Purdue Forestry Tax Web site but it leads me to different conclusions. I even went to a Timber Tax workshop a week or so ago but it did not really answer my questions. I'm trying to get ahold of the teacher of the class but have not had a chance to do so.

I can argue I owe taxes. I can also argue I don't owe taxes. That is not good! I'm trying to find as much information on this as I can. I really don't want the IRS after me!

So, if you purchase the land/timber in the year it was logged does the basis of the purchase balance out the purchase price of the timber?

Are there anyother web sites regarding timber tax issues?

Thanks....
Dan CrossEyedAboutTimberTaxes McCarty

<P ID="edit"><FONT SIZE=-1>Edited by dmccarty on 02/14/01 02:37 PM (server time).</FONT></P>

 

[rekees]

Dan

I went to the www.irs.gov site and did a form search using "timber". It referred to form 0398 Form T. I downloaded the form and it says for more forestry info about federal income tax rules and recordkeeping see Agriculture Handbook No. 708. It costs $10 and can be ordered by calling 202-512-1800. The GPO stock number is 001-000-04621-7.

Chuck in IN

 

[dmccarty]

Thanks Chuck,

I've been to the IRS site. Seems like sometimes I'm there way to much! I have the T form and I think I found a downloadable Ag Handbook as well. I am impressed how well the IRS site works. It sure beats having to run to an IRS office or maybe lucking out at the post office trying to get an obscure form or instruction book.

The problem I have in how to interpret Fair Market Value for land. What does it really mean and how to determine. Especially in my situation. Its seems to be as clear as mud. 8-(

Thanks...
Dan McCarty

 

[gordon]

Yup your right timber taxes are clear as mud here are a couple of links that might help you out alittle. Don't forget the state taxes!!!

http://www.timberbuyer.net/

http://forestry.miningco.com/science/forestry/cs/timbertax/index.htm

Hope that helps
Gordon

 

[Alan L.]

I doubt if the issue is all that complicated. The fact that your CPA didn't know the answer right off the top of his head is no reason for alarm. I am a CPA and have handled such a transaction maybe 10 years ago and don't remember the rule, but it would be pretty easy to research the question. We have a client who regularly purchases land with timber and sells off the timber, but I don't work the account. Bottom line, I believe your CPA can give you good info if you furnish him the details and allow him to do a little research. The code and regs are hundreds of thousands of pages and we can't have it all memorized.

I have been working outside my office for a few days, but when I get back in I will try to remember to get some general information for you.

I would imagine that a portion of the purchase price would be allocated to the timber and so the sale of that timber in the same year shouldn't result in taxable income.

 

[dmccarty]

Thanks Gordon,

I have searched the web until I'm blue in the face and the only site I could find was the Purdue one. Its an excellent site but I just like to read as much as I can. Help me remember!

Thanks again!
Dan McCarty

 

[dmccarty]

Hi Alan,

Lets see if Windoze will allow me to finish this note this time. It crashed just as I was about to hit the send key on my first note. GRRRRRRRRRRRRR

My taxes are usually simple enough and I can do it myself. The CPA I talked to simply did not understand what I was talking about. When I sent her the specifics I never heard back from her. I got the message. /w3tcompact/icons/smile.gif

I don't think ANY professional can understand everything in their speciality today. Things are just to complicated. I'm constantly amazed that the software we use every day works at all. It gets more and more complicated every day. More resource hungry. I'm really amazed that it works at all much less as well as it does. Except for Windoze... I wonder if someday the whole ediface will come crashing down because its complexity just became to much.....

'Nuf Philosophy about computer systems... /w3tcompact/icons/smile.gif

You are right about allocating the value of the timber and land against the total purchase price.

My long note I wrote, that went to Bill G's bit bucket, made me realize my simple question.

The equation in all of this is simple. Total Purchase Price of Land and Timber = Value of Land + Value of Timber.

I know the Total Purchase Price and I know the Value of the Timber. I wrote one check and someone gave me another! /w3tcompact/icons/smile.gif So the Value of Land is the remainder. Simple enough.

So here is the question. What if the Value of Land is LESS than the tax value. Is that a bad thing? I'm also curious about how many people are audited because of Timber issues. I used to work for the IRS years ago and I don't want to be audited. Its not worth the aggrivation.

We got a good price on the purchase. But it was not out of line with what other properties are selling.

Anyway, I'm going to send this before Windoze bites me again! /w3tcompact/icons/smile.gif

Thanks!
Dan McCarty

 

[Bird]

Dan, I'm with you on these computers. They've kept "improving" them until they've nearly screwed everything up. In the past two weeks, my brother had to buy a new desktop computer for his office and a new laptop for the truck; both of which came with Windows ME (what a mess!). He had been a fan of Bill Gates, but now he figures there's no way the federal government can hit Gates hard enough to suit him./w3tcompact/icons/laugh.gif

Bird

 

[dmccarty]

Well, when you have a monopoly you can do pretty much as you please.

I have been working with PC's since they were called micro computers in the late 70's and early 80's. I have watched the industry closely and been a part of it since then. Microsoft has really used their muscle on companies. I use Netscape as much as possible but they really are irrelevent since Microsoft gave away IE for free and have taken over the browser market. I remember having a discussion about the "Browser Wars" when Micrsoft first targeted Netscape. Some people actually thought Netscape could win/hold on because the were a better browser at the time. But when a browser is given away on each Windows machine, why would someone go get Netscape? So Netscape as a browser is all but gone.

There have been many horror stories over the years of Microsoft killing off good companies/products. Heck, Bill has beat the poop out of IBM in the OS wars. IBM had a better product in OS/2 but Microsoft had better execution, leadership and they had a Monopoly. I still try to do things that are impossible in Windows that OS/2 did 10 years ago. Its very frustrating.

I don't really know what the Fed's can do about it. They can split Microsoft up but if history repeats Bill will just get richer. I'm kinda hoping Linux gets a good foot hold but I'm not sure the mainstream consumer wants a complicated UNIX system. The bottom line is that Bill owns the PC OS. I don't see that changing anytime soon.

Which is a real shame because people accept bad software and I think BIll shares a big part of the blame for that acceptance. UNIX systems are usually rock solid. I have systems I have not rebooted in weeks/months. I have worked on some we reboot a couple times a year when we performed software upgrades. I reboot my NT workstation a couple times a week because it just locks up.

If you look at the bugs in the Windows platforms and the security holes that exist its a wonder anyone buys MS products. But the reality is there really is no choice. You can go the Mac route or you can go the UNIX/Linux route. But for most people the best they can do is Windows which is real shame.

Later.....
Dan McCarty

 

[Harv]

<font color=blue>Netscape as a browser is all but gone.</font color=blue>

I almost wish that were true 'cuz it sure would simplify things for some of us web developer types. Having tried out the new Netscape 6 for Mac, I'd have to say your statement might very well be a prophecy, /w3tcompact/icons/tongue.gif but for now Netscape still has enough of a presence out there as to be reckoned with.

Having said that, has anybody on this board come across any actual survey numbers or stats showing what the percentages are these days? I would really like to know.

Many years ago, a wise (and successful) friend of mine told me that it hardly matters how good your product is if you know how to market it. I had always believed the superior product would win in the end, but along came Bill Gates and demonstrated the marketing principle beyond doubt. In fact, he sold his operating system to IBM before he even had one. Then he had to scramble to find one. Talk about cajunas.

The whole story was well told in a made-for-TV movie called "The Pirates of Silicon Valley", which I'm sure some you saw. After grabbing some guy's unfinished home project and selling it (DOS), he later turns to his friend John Scully (Apple), "borrows" a few Macintosh prototypes and creates a cheap knock-off of his own (Windows). The Mac OS was superb, Windows was crap, but guess who grabbed the market? And so it has been ever since. /w3tcompact/icons/frown.gif

<font color=blue>You can go the Mac route or you can go the UNIX/Linux route.</font color=blue>

That's been my preferred path for the last 17 years, but now that I'm trying to make money on my own, I have no choice but to cater to the world of Windows 'cuz that's what the largest part of the market is using. If you can't lick 'em, join 'em. /w3tcompact/icons/crazy.gif

 

[dmccarty]

Harv,

I saw some numbers on the Browser market a year or so ago. IE is on top over Netscape. Which is the opposite of the market positions in the 90s. I think Netscape will eventually decline to a small part of the market, certainly on Windows platforms. I use Netscape as much a possible but there it has a bug that continues from version to version. It locks up my system about every other day. It happens on my work NT system as well as my Win98 system at home. Real Pain. I'm trying to figure out who is going to provide a browser for the UNIX platforms if Netscape stops. I suppose some freeware product will appear. I know there are already some freeware browsers I'm just not familiar with them. The Wall Street Journal had an article this week on Netscape 6 Browser. They did not like it at all. I tried it when it first came out and quickly got rid of it. One of my pet peeves is developers who just change a UI interface for the heck of it. They seemed to have done that for 6 and reliability is supposed to be a problem as well.

Quality vs marketing: Usually at this point someone brings up Beta vs VHS example as well as a few more that are escaping me at the moment. /w3tcompact/icons/smile.gif

Well, I have managed to change MY OWN thread about Timber Tax issue into Browser/OS war topics! /w3tcompact/icons/smile.gif

Later...
Dan McCarty

 

[TBN]

Hi, maybe this will be of help, if not, I know where to send you. Timber tax, is NOT as simple as mentioned in an earlier post. But the one tning you need to know, HAVE to know, 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:

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 can mean the difference in thousands of dollars sometimes.

Hope this helps

Jeff

 

[gordon]

Wow great first post, it's hard to believe that there are only four people that deal with the timber tax at the IRS. No wonder it seems muddy to alot of people.

Welcome to the board Jeff
Gordon

 

[dmccarty]

TBN,

Thanks for the great information. And welcome to TBN! /w3tcompact/icons/smile.gif

I'll check out the website you mentioned ASAP!

I have talked to a couple CPA's since my first post. I also talked with the instructor of the Timber Workshop I attended a month or two ago.

I finally boiled down my question to, "How to determine the FMV, fair market value, of the land from the purchase."

Most of the examples I see are for people who have owned the land/timber for decades. My situation is completely different in that I only owed the timber for a couple of months before selling. One item I had not thought off was the effect a growing season might have on the timber sale. If I had bought the land/timber in Jan/2000, had the timber cruised, and then sold the timber in Oct/2000, I would have had growth on the trees not accounted for in the origional inventory. But that is not my situation just more mud in the water! /w3tcompact/icons/smile.gif

I think I have my answer on the FMV of the land. But I'm always looking for more information! /w3tcompact/icons/smile.gif

I noticed you run a sawmill and I sure have questions for you! /w3tcompact/icons/smile.gif I'll have to open a new thread in Rural about sawmills.

Welcome!
Dan McCarty