![]() Forester BenefitĪ knowledgeable forester can identify this tax savings for their client providing a “forester benefit.” Moreover, a timber appraisal is necessary for establishing a basis so in certain situations, a landowner can pay a forester for an appraisal (or full management plan that includes a timber valuation) and save money in taxes. If the property is held for the required year to qualify for a long-term capital gains rate and assuming a rate of 15%, the tax savings for the landowner is $1,500. $10,000 is depleted (1000 tons harvested x $10/ton depletion unit) for a gain of $5000. Note: As volume on a property increases over time, it will affect the depletion unit calculation see callout box.Įxample: 1000 tons are harvested and sold for $15,000. ton) has an associated depletion unit, i.e. The timber basis is established for the date of acquisition this represents the total volume of wood on a property. Harvest volume is multiplied by a depletion unit to calculate how much the gain is reduced (i.e. The basis is separate from fair market value (FMV), which is the appraised value of an asset.Īs timber is harvested, timber can be depleted which reduces the taxable gain. When forestland is acquired, a certain portion of the purchase price is allocated to the timber, the land, and potentially other assets such as a house. Basis Refresherīasis is the capital investment in property for tax purposes. UNH Cooperative Extension in conjunction with faculty partners at University of New Hampshire (UNH) and Oregon State University developed a calculator to help determine the financial benefit of establishing a timber basis. However, there is often a cost to establishing a timber basis since a timber and land appraisal is required. Once a timber basis is established, landowners can elect to deplete timber thereby reducing their taxable gain on timber sales. So why should foresters understand the basics of federal timber taxes?Īn understanding of timber tax basis and how it can affect a forester’s clients can justify forester fees, generate business, and it provides a better service to landowners. If they were interested in taxes, they would be accountants.
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