question

[woodmills1]

I need to talk with any of you who have done both of these things.  used the federal tax form T timber and sold forest land.  thanks in advance for the communication. :P

[Bro. Noble]

Woodmills,

We have used the T form,  but havn't sold any land that had inventoried timber on it.  If you have specific questions I might be able to help.  If not,  I have an appointment with our CPA next Tues and could likely get answers.  

Noble

[woodmills1]

really two questions

when land is sold and accounted for on form T where does the profit get entered from form T, is it business income or a capital gain?

I plan on selling some land and taking a non-refundable deposit that I will use immediatly, the transfer will be at least a year off.  how do i account for the deposit money?

this forest has been listed on form T for 12 years and any harvested wood money has been listed as business income and depletion was taken, but the land is owned soley by me not the business.

thanks in advance for any insight.

[Jeff]

Woodsie send Ron Scott a message to be sure to look at this. He and I took a Timber tax workshop together, but he has much more experience with the subject. I had almost zero retention. :

[Bro. Noble]

Woodmills,

You probably need to talk to a tax person.  You have at least three different situations looks to me like.  I think the deposit would be considered as a payment and would go on a form 4797 or schedule D.  First you have to figure your profit on the sale which would be the selling price minus the adjusted base.  That's where the timber depletion comes in.  The stumpage value of the timber sold can be tax exempt but you have to subtract that value from your base when you sell the property.  The sale of the property would be subject to capitol gains if you owned it long enough.  The money that you make by processing and selling timber products is ordinary income (except for the stumpage value).  In order to take advantage of the 'timber tax' provisions,  you have to have an inventory of the timber on the property at the time you purchased it.  Works basically the same as depreciation on buildings and fences.  The biggest benefit on the timber tax rules is for property that will stay under the same ownership for an extended period of time.

I think this information is correct but I don't guarantee it------I've lost a lot of brain cells since I worked with such stuff.

Noble

[Ron Scott]

Yes, you should definitely have a professional tax accountant address your specific situation to your advantage.

You need to determine  the "basis" (appraised value of each)  for the land, timber, buildings, etc. via appraisal of each element at the time of purchase. You also need to determine if you are an "active" or 'passive" landowner of the timber land for business profit, hobby or whatever so as to set up your tax profile for proper deductions and reporting.

See the Timber Tax Website at www.timbertax.org for possible answers.

[woodmills1]

thanks guys, i have a good handle on the use of form T and have done the inventory and used depletion since 1990.  the part I am not sure of now is what happens when I sell some land. my cutting and sawing has made all income from the trees be accounted for as business income so I am trying to figure if I can take the profit from the land sale, separate from the trees, and treat that as a capital gain.  I must put all profit from the trees as ordinary business income because I have consistanly used the trees in that way.

the IRS defines installment sales as one where at least one payment comes after the transfer, and in this case the payment will actually be before the sale.

like my farmer friend says if the thing was easy everyone would be doing it.