While many landowners inherited their woodland, or consider it their home, ownership of forestland is also a business enterprise and can generate returns for landowners. While timber sale proceeds are subject to capital gains tax, many landowners are unaware that they can deduct their Timber Basis (as well as inventory expenses, sales commissions, and costs of capital improvements) from that gain. This deduction can frequently save landowners tens of thousands of dollars in taxes.

Timber basis is the value attributable to the timber on the property at the time of inheritance or purchase.  The best way to determine this value is to complete a forest inventory and appraisal within a year of acquiring timberland.  This step is often overlooked, but fortunately there is another option.  Past timber values can be estimated by completing a current inventory and collecting data on growth rates for the time period in question.  Current volumes can be “grown backwards” using growth rate data to determine past volumes, and historical pricing information can be used to determine past values.  Either way, all inventory work for establishing a timber basis must be completed before the timber is harvested.

Ask your accountant or tax preparer about these issues before you sell your timber, and visit the Timber Tax website which is full of good information regarding tax treatment of forestland and timber.