USA capital gains tax on timber

Larry Caldwell larryc at
Wed Nov 19 06:20:02 EST 1997

In article <3471CF29.6EB5 at>,
"Geary N. Searfoss" <gscpa at> wrote:

> The Tax Relief Act of 1997 (aka Tax Complication Act of 1997 or Tax 
> Preparer's Job Security Act of 1997) made some big changes to the capital 
> gains picture. These changes, however, are limited to rates and holding 
> periods. They did nothing to change the way that basis is computed.
> In essence, the gain (gross profit less basis less expenses of sale) from 
> a timber sale will be taxed at lower rates if the timber was sold (or 
> payment received on an installment sale) after May 6, 1997. 

A landowner can take a timber sale as income or as capital gains, depending
on how he does it.  The maximum capital gains rate is going to 20% soon,
so most people will benefit most from treating a timber sale as liquidation
of an investment.  The rate is dropping to 15% for those people in the
15% bracket.

This means a stumpage sale, not a log sale.  If you sell the stumpage
it's capital gains, if you haul the logs to the mill it's income, taxed
at income tax rate.  With SSI and the top income bracket, that can run
53% of your income, so taking the capital gains rate is almost a 

Assigning a basis at purchase is important too.  Say you pay $200,000
for a piece of property, log it and keep the land.  The IRS can argue
how much of the $200,000 went to pay for timber when you bought it.  
The less the timber was worth, the more of your money will be subject
to the tax.  

The best thing to do is for you and the seller to assign a basis value
to the timber when you buy the property.  Then there's no argument.
If you don't want the seller to know how much his timber is worth,
you can pay a forester for an appraisal.  Actually, that's probably
a good idea in any case.

The best thing anybody can do is find a good accountant who understands
forestry taxes and investments.  H&R Block just isn't good enough when
you have that much at stake.

-- Larry

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