Tax Treatment of Timber
Very few sections of the Internal Revenue Code are written specifically for timber. This means there is a considerable amount of interpretation involved. This website was developed to be used by timberland owners, as well as a reference source for accountants, attorneys, consulting foresters and other professionals who work with timberland owners by answering specific questions regarding the tax treatment of timber related activities.
New Developments:
New Deadline for Copy B of Form 1099 (Posted 12/3/08)
The IRS announced that the date by which Copy B of Form 1099-S is to be received by the taxpayer to whom payments were made in 2008 has been changed. The instructions for the form give February 2, 2009 as the date. The correct date for 1099-S is February 17, 2009 because of the weekend and holiday rule. Otherwise the due date would be February 15. The change to February 15 was made by the Emergency Economic Stabilization Act of 2008. The due date for 1099-MISC remains February 2, 2009. A discussion of Form 1099 for payments for acquisitions of timber is at “The IRS Form 1099 Conundrum (Updated on 11/29/07 to reflect REG-155669-04 , Information Reporting for Lump-Sum Timber Sales, 11/28/2007)”
Sale of Conservation Easement on Farm Subject to Current Use Valuation Triggers Recapture (Posted 11/10/08)
If all the qualifications of IRC Sec. 2032A are met the value of real property for estate tax purposes can be determined based on the current use of the property, instead of the highest and best use. This is generally referred to as “current use valuation.” The property so valued must continue in a qualified use and be owned by a qualified heir. If the property is disposed of or is changed in use, the estate tax otherwise due because of the lower valuation must be paid.
Since special use valuation was originally enacted conservation easement programs have became active. The U. S. Congress amended the current use law to support the use of conservation easements by providing that a disposition “by gift or otherwise” of a qualified conservation contribution on real property subject to current use valuation election will not trigger the recapture. The Congressional intent of “by gift or otherwise” has been questioned, specifically does it include a sale of a conservation easement on real property subject to current use valuation.
Although private letter rulings issued by the IRS to a specific taxpayer cannot be cited as precedent, they are useful indicators of how the IRS approaches an issue. In Letter Ruling 200840018 (10/3/08) the IRS notified the taxpayer that the sale of a conservation easement on their farm would trigger the recapture of the estate tax saved by the lower valuation. A revenue ruling may eventually be published on this issue, or the law amended by Congress. But for now, it appears that only outright gifts of qualified conservation easements on land subject to current use valuation election will not trigger the recapture. Consult your tax counsel for additional information.
Estimated Inflation Adjustments for 2009 (Posted 10/30/08)
IRS has released inflation adjustments related to income, estate, and gift taxes (Revenue Procedure 2008-66): (1) The Annual gift tax exclusion increased from $12,000 to $13,000 in 2009; (2) the aggregate decrease in the value of qualified real property to which Special Use Valuation is applied (IRC Sec. 2032A) can't exceed $1.0 million, up from $960,000 in 2008; (3) the amount used to determine the 2% portion of estate tax payable in installments is $1.33 million in 2009, increased from 1.28 million; (4) the standard deduction for Married filing jointly is $11,400, Heads of households $8,350, Unmarried $5,700, and Married filing separately $5,700...|more|
IRS Releases Revised Estate and Gift Tax Publication (Posted 10/14/08)
A standard free source of essential estate and gift tax information is IRS Pub. 950 an Introduction to Estate and Gift Taxes. This new edition is must reading for anyone involved in updating their estate plan because of all the upcoming changes resulting from the scheduled elimination of the estate tax in 2010 and the change back to a $1.0 million exempt amount for deaths occurring in 2011 and thereafter. Until the recent market crash Congress was expected to pass legislation to put the exempt amount in the $3.0 to $4.0 million range. Congressional priorities have changed and new sources of revenue to fund the various bailouts will be a high priority.
Tax Tips for Forest Landowners for the 2008 Tax Year (posted 10/11/08)
Tax Tips for Forest Landowners for the 2008 Tax Year (Linda Wang & John L. Greene) (PDF) - Annual bulletin summarizing key federal income tax provisions related to owning and managing forest land. For previous years Tax Tips click here!
Taxing Issues:
Be Audit Ready - 2008 End-of-Year Review (by Bill Hoover)
There are several significant timber tax issues that have not been definitively settled by the IRS's rule-making process or by court cases. you may need to work with your tax preparer to conduct your year-end analysis. If you do, be certain they are familiar with the benefits available to Tree Farmers, even if this means "educating" them yourself. the IRS;s audit program is focused on upper-income returns, those with more than $1 million of gross income, and pass through entities such as partnerships and S corporations. This includes limited liability companies, since most elect to be taxed as partnerships. A little less than two out of 100 returns in these categories are audited. Only one out of 500 returns reporting $25,000 or less gross income are audited. ...|continue|
Legislative Updates:
The Forest Landowners Tax Council (FLTC) is an independent, national non-profit organization dedicated to providing an effective and unified voice for non-industrial, private forest (NIPF) landowners on federal tax issues...| Current News|
If you are interested in current legislation that may have an impact on your timber activities click here!
Tax Workshops:
Looking to increase your knowledge in the tax treatment of timber, or just want to gain an understanding of the basics, check to see if there is a Timber Tax Workshop or Seminar available in your state...|more information|