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Tax
Incentives
How is timber
property taxed?
Determine your timber
basis.
Basis is usually determined by the cost of property when
it is acquired--unless acquired through inheritance or gift.
Basis is used to determine gain or loss on sales or exchanges,
and for computing amortization, cost recovery, depletion and casualty
loss deductions.
Income and Tax
Deductions
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Income
from cost-share programs does not have to be claimed as income.
-
Income
from timber sales should generally be reported as capital gains under
Section 631(a) or (b).
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Capitalized
management and reforestation costs, and expenses incurred in preparing
and making the sale are deductible from the income.
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Certain
annual management expenses may either be deducted in the current year
or capitalized and deducted when the timber is sold.
Such expenses
include:
interest payments on timber management and
reforestation loans
timber and general liability insurance premiums
road and fire line maintenance expenses
administrative expenses (accounting, legal, professional forestry)
costs of hired labor
costs of tools and materials used in maintaining a timber stand
Reforestation costs--site
preparation, seedlings,
planting expenses, etc.--up to $10,000 per year
may be recovered over 84 months through the
reforestation tax credit
and amortized deductions.
Landowners may take a 10 percent tax credit (up to $1,000)
in the year that the expenses are incurred and amortize the remaining costs
equally over seven years.
Tax
laws are subject to interpretation and frequent change. Please check with your
tax advisor on the applicability of current tax law.
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