White oak log prices

[Hunter 257W]

Regarding considering timer sales as Capitol Gains, how do you establish the value of the timber at the time you bought the land? You have to have some defend-able method for separating out the land value vs. timber value at the time of purchase to be able to calculate what your capitol gain is at the time you log your land. All I can think of is to try to find the sale price of comparable land in the area that was sold right after a clear cut???

You can have a qualified forester submit evaluations. I don't believe it's necessary though. If you own the land for at least a year, and the cut on a pay per load basis, you should be good. I have heard of getting evaluations for the purpose of having timber cuts treated as a reduction in basis.....which would result in no tax to the extent basis is reduced. If that's actually legal. If you sell the stumpage as a boundary, I'm not sure what hoops need to be jumped through to get capital gains treatment.

I'm not that up on taxes to fully understand what "reduction in basis" means but if it results in Zero taxes then obviously that is even better than Capitol Gains tax rates. Do you mean that timber values could go down so far compared to when you purchased the land that the loss of value offsets the increase from growth that occurred since the original purchase?? Also not sure what you mean by selling "stumpage as a boundary"? I can see the value in using a forester for all this!

 

[pass-thru]

I probably should have said "timber as a boundary." Stumpage is the price paid at the mill. Selling a boundary means you get a fixed price for the timber on the acreage, like a lump sum. Pay as cut means you get paid for each load that is cut, either a fixed price for the load or a percentage, etc.

Tax basis is what you paid for an asset, or what you have invested in it. When you sell the asset, anything over your basis is taxable (with some exceptions). When you die, your assets get a stepped up basis to the value at the time of your death. That is one advantage to holding on to real estate and passing it through your estate, if it is has increased in value since you bought it.

 

[treefarmer]

The best way is to have a forester give you a written value of the timber and then obtain a bare land value and put the two together. If they add up to more than you paid then the accepted practice is to proportionally divvy up the costs. I got a letter from a forester for the timber value and determined my own land value. Using comparable land sales is a defendable method. Foresters can go back in time to determine values.

 

[maddogfo]

I was looking at purchasing land that has timber on it. My plan was to gift it to my heirs so that inheritance tax, federal, wouldn't force them to sell it just to pay the taxes. As of January 1st, 2016, inheritance tax in Tennessee went away. Seems to me that it would be a bad thing to get the value of the property stepped up. Am I missing something?

 

[pass-thru]

The value of the property is determined by the fair market value. Tax basis pertains to capital gains, which is completely different than estate tax. Estate tax is levied on the gross estate, and it captures the fair market value of the property as well as all other assets. I don't know what the state exemption is on estate tax, but the federal is now over $5 million on and individual, twice that for a couple. By stepping up the basis for capital gains, it reduces the tax liability.

If you bought property years ago for 10k, and sold it now for 100k, then you would have 90k of capital gains that is taxable. If instead you die and it passes to your heirs, they would now have a basis of 100k, and could sell it tax free. Or if they sell it in 10 years for 150k, there would be only 50k of capital gains at that time.

 

[csi-tech]

GREAT THREAD!!! We are transitioning ownership of a 150 acre parcel from the father in law to the wife. I am purely a recreational landowner and I am pretty happy with our money situation now that the kids are gone. I am always awed at the massive poplars on our land and the volume of mast. One day we may have the timber evaluated. There is no question that some just needs to go. You can see 300 yards in any given direction and the canopy makes it dark in the summer.