TAXES and TIMBER SALE INCOME
Article #43, January 2001
By Bill Cook
Every year there are many timber sales on private land across the Upper Peninsula, even though we own less than a third of the forest. The income from a timber sale means that Uncle Sam will be interested in a cut.
Considering the impacts of timber sale income on your 2000 federal taxes is important, assuming that you are interested in keeping as much money as you can without going to jail.
Now is the time to consider how this income will affect your tax burden, well before 15 April. MSU Extension is sponsoring introductory “Timber and Taxes” workshops in Manistique, Marquette, and Iron River in early February.
The IRS treats timber sale income with a special set of codes and a special Form “T”. The basic elements are confusing to many landowners. Complicated situations will challenge even the best tax preparers.
Here are a few tips.
One. Consult a tax preparer that has experience with timber sale income and private forest owners.
Two. You’ll most likely want to go the “capital gains” route and not the “ordinary income” route. The tax difference can be substantial
Three. There are many allowable deductions from the gross income of the timber sale. Find and use all that you can. The “depletion allowance” is one form of deduction based on the price you originally paid for your standing timber. If you’ve owned your land less than 20 years, this one might pay off.
Four. Begin assembling your records now, if you don’t already have them.
What records will you need? At a minimum, the price you paid for your timber in the first place, and how much volume was there at the purchase time. Forest volumes can be “grown back” for this purpose. The process can be quite a paper chase.
You’ll also need to know how much volume was harvested and how much you were paid for each species and product. Any records of expenses related to the timber sale need to be collected.
Having a forest management plan can be of considerable help, especially if it addresses timber issues.
All of these things will need to be in writing. Receipts are important.
You might end up wishing that you knew more about the federal tax implications before the timber sale, and maybe even regret having the sale in the first place. If you’re thinking about a timber sale in the near future, then now is the best time to think taxes and make the process go smoother.
For more information about federal income taxes and timber sales, or the upcoming workshops, contact your County MSU Extension office. Some good advice might save you a lot of money.
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Bill Cook is an MSU Extension forester providing educational programming for the entire Upper Peninsula. His office is located at the MSU Upper Peninsula Tree Improvement Center near Escanaba. The Center is the headquarters for three MSU Forestry properties in the U.P., with a combined area of about 8,000 acres. He can be reached at email@example.com or 906-786-1575.
by Bill Cook, Forester/Biologist, Michigan State University Extension, 6005
J Road, Escanaba, MI 49829
906-786-1575 (voice), 906-786-9370 (fax), e-mail: firstname.lastname@example.org
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