Brad? 1099-s

[Brad Imsdahl]

The regulations make it clear that the residual value of land at the end of operations must be subtracted from the adjusted basis in determining cost depletion, including cost depletion for timber.

Reg. Sec. 1.612-1(b) says:

(b) SPECIAL RULES.

(1) The basis for cost depletion of mineral or timber property does
not include:

(i) Amounts recoverable through depreciation deductions, through
deferred expenses, and through deductions other than depletion,
and

(ii) The residual value of land and improvements at the end of
operations.

[xgflek]

For what its worth our office deals with timber sales on at least a weekly if not daily basis and just concluded an audit on timber sales from inherited timberlands with a result of no change.

Does not include is not the same as subtract, you separate your land from your timber at the time of acquisition and thus there is no land value in your timber so you have not included it in your basis for depletion, you also can not include the residual value of the land in your depletion basis and thus get to take more depletion just cause the land has increased in value. You do not include the residual value in your depletion calculation, this does not mean you lose your timber basis because your land value has increased. If you buy a plot of land for $20000, and you buy a $50000 and park it on the lot, 20 years later the land value is $60000 and you sell the mobile to be moved off the land for $75000, do you have to report a $25000 gain on the trailer sale or $65000 gain because the land you still own has gone up in value. That mobile home is timber. As Pub 535 says "Your cost does not include the cost of land or any amounts recoverable through depreciation." Thus you separate your land and timber, Pub 535 also says "Base your depletion on your cost or other basis in the timber." This means your cost, your inherited FMV at time of death, or donor's basis for a gift, plus any adjustments for certain expenses, (reforestation, etc.)

With that said I will give up on this one and just note that the IRS does have foresters on staff and perhaps contacting one of them will clarify this issue.

Also I have included the rest of the cite Brad made to include the portion where it also mentions that "In the case of timber property, the basis for cost depletion does not include amounts representing the cost or value of land. "

(b) SPECIAL RULES.

(1) The basis for cost depletion of mineral or timber property does
not include:

(i) Amounts recoverable through depreciation deductions, through
deferred expenses, and through deductions other than depletion,
and

(ii) The residual value of land and improvements at the end of
operations.

In the case of any mineral property the basis for cost depletion does
not include amounts representing the cost or value of land for
purposes other than mineral production. Furthermore, in the case of
certain mineral properties, such basis does not include exploration
or development expenditures which are treated under section 615(b) or
616(b) as deferred expenses to be taken into account as deductions on
a ratable basis as the units of minerals benefited thereby are
produced and sold. However, there shall be included in the basis for
cost depletion of oil and gas property the amounts of capitalized
drilling and development costs which, as provided in Section 1.612-4,
are recoverable through depletion deductions. In the case of timber
property, the basis for cost depletion does not include amounts
representing the cost or value of land.

[Ron]

Timber depletion

Reg. Sec. 1.611-3 has the rules applicable to timber.

Reg. Sec. 1.612-1(b) is referring to the residual value of land at the time of acquisition to establish the timber basis, if any. (In the case of timber, what is the value of the land, at acquisition, if it was stripped of timber.)

Once the basis of the timber, if any, is established, the subsequent increase (or decrease) in land value would have no impact on the timber account basis.

[Black Bart]

Just curious, Sue,

I have a client that cut timber off his land that was inherit by his father (that died) in 1986.
He cut the timber off it last year and sold it for $10946.

The client says the land was worth $10,000 back then and he put $1,000 in a survey.

My question is: Do I put $11,000 in cost and then the sell of course the $10946? That would make a $54 loss, if that is correct.

Any suggestion on this matter? (and I don't know what it is worth today).

Looked on page 5-28 on TTB, and page 3-19, but don't know if that applies to my client.

Can you explain---please?

THANK YOU VERY MUCH

but...are you taking the $54 loss now?

[jerome]

Reg. Sec. 1.612-1(b) is referring to the residual value of land at the time of acquisition to establish the timber basis, if any. (In the case of timber, what is the value of the land, at acquisition, if it was stripped of timber.)

No, the regulation clearly says the residual value of land at the END of operations. It does not say the residual value of land at the time of acquisition.

If you acquire property and don't intend to strip off the trees for another 20 years, you have to take the residual value of land at the end of operations, which is 20 years later. There can be no basis in cost depletion if the value of bare land at the end of operations exceeds your total adjusted basis in the property.