How do you calculate timber tax?
The basis of the timber sold is determined by calculating the “allowable basis” of the timber sold. This amount is determined by multiplying the number of MBF sold by the depletion unit for your timber. The depletion unit is the basis of the timber in the year sold divided by the total MBF of timber you own.
Is the sale of timber taxable?
The sale of standing timber that is held as an investment is taxed as a capital gain. Capital gains are defined as either long-term or short-term gains.
How do you calculate the selling price of timber?
To calculate the proportionate value of each timber product, divide the appraised value of the product by the total appraised valued of the property. To calculate the original cost basis of each product, multiply its proportionate value, the decimal, by the total acquisition price.
How is income from timber taxed?
When you sell timber, your revenue will either be taxed as Ordinary Income or Capital Gains. The tax rate for ordinary income is higher than capital gains tax rates.
How do I avoid capital gains tax on timber?
The IRS code about timber sale taxation is a bit obscure. There are three main ways to reduce the tax bill; 1) report income as capital gains, 2) calculate the timber basis and depletion, and 3) keep receipts for all out-of-pocket expenses related to the timber sale.
What percentage do Loggers take?
A fundamental feature of any contract is method of payment. In logging contracts, payment is most often based on either dollars per unit or a percentage of the value of the wood. Historically, loggers have worked on a percentage basis, and 50 percent of the value of the wood was standard operating proce- dure.
What are timber royalties?
Royalties are defined as payments tied to the extraction of the resource, meaning in the case of timber pay-as-cut contracts. (See IRS Announcement 90-129, I.R.B. 1990-48,10). Note that a lump-sum contract is one that definitely fixes the total amount to be paid in advance of cutting.
How do you calculate capital gains on timber sale?
Once the timber proceeds qualify as a capital gain, determine the amount of the gain. Gross income minus depletion allowance minus cost of conducting the sale equals the net capital gain.
What is a timber basis?
Timber basis is the amount of money invested in the timber itself (excluding the amount in the land on which the timber stands). Conversely, land basis is the amount of money invested in the bare land and any subsequent improvements ( Drainage, roads, bridges,etc)
Is timber tax deductible?
To be eligible for the beneficial long-term capital gains, you must own the standing timber held as an investment for more than 1 year before the sale (inherited timber is automatically considered long-term). Timber sale expenses are deductible from the sale proceeds.
Is forestry Income Tax free?
In effect this means that Forest Grants, Forest Premiums, sale of forest thinnings and sale of clearfell are ALL exempt from Income Tax. Dividends paid by companies out of profits in respect of woodland income are exempt.
How do I report timber sales on tax return?
If you held the timber for more than one year before selling it you should report the total amount received for the timber on Form 1040, Schedule D, Part II, column (d). You may be able to recover your cost basis in the timber sold, also referred to as a depletion allowance.