Timber
Total Views: 50
My client bought the land for $144,000 in january of 2008, and is selling the timber this year, in 2009. How do I figure out what the basis of the timber is? How is income from timber sales normally reported and taxed?
Answer
If they had an appraisal of the property done when they purchased it, and done properly, the value of the timber would be listed on the appraisal.
I generally see the income reported as ordinary on Schedule F for individuals, but I am not an expert on timber.
Answer
I don't do timber either, there isn't any where I live, but it sure would be nice if you could treat it as a basis reduction until the $144K is exhausted. I can't think of any way to pull that off. Actually, the larger problem will probably be determining if his timber sales rise to the level of a "trade or business." It's a facts and circumstances test, If yes, then it's ordinary; if not, it's long-term capital gain.
That's called covering all your bases without answering the question.
Inside of a dog, it's too dark to read.
~Groucho Marx
Answer
It depends on if the owner of the land is in the farming business or not. If a farmer, it goes on schedule f. If not it is a schedule d transaction. The purchase price needs to be allocated to land and timber values. How much gain depends upon what kind of trees and how long it takes them to grow to harvestable size. A fast growing tree would have more gain on this sale than a slow growing hardwood.
Answer
Basis and depletion is usually calculated on Form T. However this form is quite intensive and requires the appraisal sjrcpa was referring to.
Comment
If you have all of the necessary info, you can claim depletion to use up the basis. None of my clients, who only have sporadic timber sales, have ever had all of the information.