So hopefully in the near future, I will be able to buy a property and maybe be able to harvest some timber off of it. Since this is income, I would assume I would have to pay taxes on it? I have been researching this topic a bit and came across a timber tax basis where within 5 years of purchasing a property, you can have someone come out and give you a value of the timber. You then can take that amount to be used as part of the purchase price of the property. Then when you harvest some of the timber, that will be tax free because its considered a loss. For example, say that the timber was value at 20k and you only had 10k of timber harvested, that would be considered a loss and no taxes would have to be paid on the 10k. Has anyone had any experience with this? Below is a video that can probably explain this better...lol.
tall@wide
PMA Member
I looked into this a few years ago and was told you do this right after you purchase a farm. Have a forester (I was told it has to be a forester) give you the timber value in writing, and then when you harvest timber the cost basis has already been set. I never did this, but it seems like a way to save tax money if you plan to harvest timber.
I’ve never dealt with this directly but have some other similar “things”….. Not tax advice but for this to be an option I am pretty sure you would be reducing the tax basis of the land so if you pay $100K for the farm and establish timber value of $20K that is sold for loss then the tax basis of the farm if/when sold would be $80K which COULD matter when/if you sell it. Now there are other things that come into play if/when land is sold. I’d say talk to your tax accountant. Assuming you have taxable income the “loss” would only save marginal tax rate……
Nrharris
PMA Member
I would assume, but quite possibly wrong, it would be similar to what ag guys are doing on land. They set a value to the fence, drain tile, any buildings, excess fertility,etc. They then depreciate the value of those things after purchase on a schedule. Since you can't depreciate land, it seems some use this as a loophole. Disclaimer: I am just a dumb farmer and am giving zero tax advice. I did not pass the cpa exam. Missed it by 2 points before I came to my senses.
Yes- it works tax free.
2 cents….. 3 cents actually:
-80% of time: DON’T LOG RIGHT AWAY!!! LONG LONG list of reasons.
-MOST FARMS, waiting “1-2 years” on a “proper harvest done right” is almost tax free as well (tiny tax ramification!!!!).
-the cases where u log right away are rare but do happen. Get bids & a very conservative forester involved.
2 cents….. 3 cents actually:
-80% of time: DON’T LOG RIGHT AWAY!!! LONG LONG list of reasons.
-MOST FARMS, waiting “1-2 years” on a “proper harvest done right” is almost tax free as well (tiny tax ramification!!!!).
-the cases where u log right away are rare but do happen. Get bids & a very conservative forester involved.
Surely treated like NRHARRIS stated above and would have to reduce the tax basis of “the land” if the property is ever sold?
Yup.
You can do same thing when you buy a tiled farm. Depreciate tile. Will bite you if you sell tho.
That is the angle I figured it was after. I guess if you 1031 exchange the sale proceeds you could continue to roll forward until you cash out or pass on.
I recently sat through a class that explained this, best thing I can tell you is to talk to a forester first- and it does have to be done within 2 years of buying a property. Lots of other things, but again, talk to a forester first about it in general. Like Skip said, most of the time, people want to log to "make money" but typically if you can leave a few good trees stand for a few more years and gain some of the valuable inches will be TREMENDOUS.
Also get multiple bids, our forester said that a local had bids anywhere from 80k up to 240k FOR THE SAME TREES.
Also get multiple bids, our forester said that a local had bids anywhere from 80k up to 240k FOR THE SAME TREES.