Wow!
It finally happened! You are now the proud owner of some woodland acres or timberland. Like
most new owners, you cannot wait to enjoy the property. Therefore, you pull on your
boots and head for the woods. This is
what all too often happens when a new owner takes title to forestland. However,
you should place the joys of ownership on hold for one very important
determination. A new owner should first determine the original basis, or value,
of all merchantable and unmerchantable timber at the time of acquisition.
Before explaining the basis in detail, let's quickly see why it’s so important.
If you conduct a timber sale and receive income, your basis, for that
portion of your timber sold, is deducted from the sale income before computing
income tax. Since knowing your basis can reduce your tax bill, it’s very
important to make the necessary calculations when you acquire woodland
property! For example, I recently thinned some timber on my property. I earned
$15,553 from the thinning but ONLY had $2,787 in capital gains! Quite a
Savings!!
Merchantable timber is simply determined by cruising the timber and assigning
Fair Market Value by a Registered Forester. Unmerchantable timber is a bit more
complicated but is generally determined by a formula or discounting an
anticipated cash flow aka Present Net Value.
Subtract the cost of the timber from the total purchase price and assign that
value to the bare land.
Purchase Price = Timber Value + Bareland Value (Land Expectation Value)
To see my listings visit AllSouthLandandHomes.com Buying or Selling Land? Contact G. Kent Morris, ALC, RF at (706) 457-0090
