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Timber Tax Management. The maximization of after-tax returns from timber/land investments or businesses. Your Instructor. William L. (Bill) Hoover Professor of Forestry Department of Forestry and Natural Resources Purdue University West Lafayette, IN 47907-1159 765/494-3580 765/496-2422
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Timber Tax Management The maximization of after-tax returns from timber/land investments or businesses.
Your Instructor • William L. (Bill) Hoover • Professor of Forestry • Department of Forestry and Natural Resources • Purdue University • West Lafayette, IN 47907-1159 • 765/494-3580 • 765/496-2422 • whoover@purdue.edu
Timber Tax Website http://www.timbertax.org Purdue University & U.S. Forest Service
Publications Forest Owners Guide to the Federal Income Tax, W.C. Siegel, W.L. Hoover, H.L. Haney and K. Liu, USDA Forest Service, Agriculture Handbook No. 708, GPO Stock Number 001-000-04621-7. “Official” timber tax publication. Order from: U.S. Government Printing Office, Superintendent of Documents, Mail Stop: SSOP, Washington, D.C. 20402-9328, $15.00
Judge Learned Hand “ There is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible, everyone does so, rich and poor; and all do right. Nobody owes any public duty to pay more than the law demands; taxes are enforced exactions, not voluntary contributions.” 1872-1961, American jurist; b. Albany, N.Y. A federal judge from 1909 to 1951, Hand, a noted defender of free speech, was often known as the tenth justice of the Supreme Court. He published The Spirit of Liberty (1952) and Bill of Rights (1958).
Characteristics of timber activities and associated actions that should be taken • High initial cost with little possibility of immediate recovery • Maximize proportion of available basis allocated to recoverable assets • Amortize reforestation expenditures
Characteristics of timber activities and associated actions that should be taken • Long pre-productive period • Structure activity to allow write-off of qualified expenses against other income Ridge top soft (red) maple tree – about 4 growth rings per inch
Characteristics of timber activities and associated actions that should be taken • Investment horizon multi-generational • Arrange affairs to minimize liability for estate and other death taxes • Transfer management before death
Timber As An Investment: Tax Aspects • Not a tax shelter in classical sense – can’t write-off more than out-of-pocket investment. • Major advantage is accumulation of value and pre-tax compounding.
Timber As An Investment: Tax Aspects • Long-term capital gains available • Disposal on stump as capital asset (IRC Sec.1221) • Disposal of stumpage held for use in trade or business (IRC 1231) or primarily for sale (631(b) & 1231) • Sale of cut products with election to treat cutting as a sale (IRC 631(a) & 1231)
Timber As An Investment: Tax Aspects • Reduce revenue from disposals by basis of timber disposed of, • No percentage depletion • “Depletion” applies only to party severing timber • Stumpage – recover “allowable basis” California quail
Timber As An Investment: Tax Aspects • Carrying and operating costs usually deductible as business (IRC 162) or investment expenses IRC 212) • Property tax relief may be available What time do the picnickers arrive?
