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    Sale of Timber

    Need somebody with some experience in this area...

    My client is not in the business of growing, cultivating, or managing timberland or forestry. My client inherited a relatively small parcel of land over 30 years ago when his father died. This is the first time since my client inherited the land that timber has been cut and sold.

    The land has been unoccupied and has not been used for any purpose, nor has it generated any other income of any type. I am tentatively taking the position that the land was "property held for investment." At one time there were a few dwellings on the property, but they were unoccupied, and they were in an uninhabitable condition. They were torn down several years ago.

    My client received a Form 1099-S for the proceeds of the timber sale.

    The amount of money involved, relatively speaking, is microscopic. The gross proceeds were under $10,000.

    My research is leading me to the conclusion that the proceeds of the timber sale must be reported on Schedule D, and that something called Form T may be involved. It appears that my client may have a basis in the timber that was sold.

    This is getting really complicated really fast. [LMAO]

    Can someone give me the Cliff's Notes version of this?

    I am tentatively prepared to make the following assumptions:

    (i) The timber was sold as stumpage, i.e., standing timber, on a pay-as-cut contract.

    (ii) Although the land was inherited over 30 years ago, I do not anticipate a significant problem in determining the basis of the land.

    (iii) There have been no improvements made to the land since it was inherited.

    (iv) There are no meaningful expenses associated with the sale of the timber, except possibly the cost of a surveyor's report.

    (v) The client did not cut the timber and then sell it. The timber was cut by the party who bought it. The gross proceeds are effectively net proceeds.

    The only other complication is that the 1099-S was issued to my client as an individual, and he then distributed the proceeds in equal shares to some other individuals who jointly own the land with him. But I know how to deal with that. My client probably has to issue Form 1099-S to each person who received a share of the proceeds.

    How exactly do the proceeds of the sale get reported? Is there really some sort of basis to the timber itself?

    Burton
    Burton M. Koss
    koss@usakoss.net

    ____________________________________
    The map is not the territory...
    and the instruction book is not the process.

    #2
    Schedule D Long Term capital gains with a basis of zero is how I would report it. To figure depletion and/or file the Form T is so time consuming your fees would be more than what your client would save in the end.
    http://www.viagrabelgiquefr.com/

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      #3
      When I did timber depletion (albeit many years ago) we used a percentage method. Only problem was land had to be evaluated and board-feet estimated prior to cuttage in order to determine how much was there to begin with. Was it all cut down? That would make it simple. If you know how many board-feet were cut and the area it involved, an appraisal could probably be made on what's left.

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        #4
        You might look at Pub. 225 Farmers's Tax Guild. Page 45 Timber Depletion and
        page 52 Timber--Capital gain also page 25 talks about Sec. 631a Christmas trees.

        Comment


          #5
          This site may have info

          Comment


            #6
            The basis equals the amount of timber sold that was actually standing 30 years ago times the market price at that time. You can find historical timber prices at: http://www.srs.fs.usda.gov/econ/data/prices/

            Those are the prices paid at the mill, not on the stump.

            A portion of the timber sold represents growth that has occurred over the last 30 years, that is not part of the basis. You can work backwards to find this by using the growth factor, see your local forester for details
            Last edited by cpadan; 03-03-2008, 06:10 PM.

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