Tree Farmer - November/December 2011 - (Page 40)

By Wang lInDa Timber Casualty Loss How Is Casualty Loss Determined? Deductible casualty loss for timber held as a business or investment property is the smaller of the adjusted basis of timber and the difference of the fair market value (FMV) immediately before and after the casualty. Salvage sale is reported separately. As an example: A tornado damaged your woodland tract. Before the tornado, the fair market value of the timber was $10,000. But after the storm, the timber is worth only $1,000. So the FMV loss of your timber is $9,000 ($10,000– $1,000). Assuming your timber basis is $5,000, the amount of casualty loss deduction is only $5,000, not $9,000. • Inherited timber property is the FMV (or alternative value if so elected) on the date of death (or on alternative valuation date) The adjusted basis is the original basis reduced or added by changes (e.g., new purchase or sale of timber) during your ownership. How to Handle Income Tax Deduction for taxing issues proceeding. 40 Timber damaged by hurricane, fire, ice, hail, tornado, high wind, earthquate, snow, and other storms are “casualty losses” that may allow Tree Farmers to claim a deduction on their federal income tax returns. But in many cases, the specific requirements on loss calculation set by the tax laws and rules may actually result in low or no deductions, to the surprise of many Tree Farmers. It is important to weigh the cost of hiring professional forestry or appraisal services to establish the required tax records against the potential tax savings before What If I Don’t Know the Basis of My Timber? If you have not determined the basis of your timber at the time of acquisition, you may use the current volume, growth over the years, and timber price at the time of acquisition to establish it retroactively (The IRS Timber Casualty Loss Audit Technique Guide). Use Form T to document your timber basis. www.irs.gov/pub/irs-pdf/f4506t.pdf What Is the Adjusted Basis of Timber? Generally, the cost of a property (standing timber) is termed “basis” in tax. Depending on how you acquired your woodland property, the basis of your timber may vary. Here we define the original basis for various types of property: • Purchased timber property is the purchase price and related costs (such as legal fee and timber cruises) • Gifted timber property is the donor’s adjusted basis in most instances. A “gift” example would be a property given by the parents to their children while they are still alive How Can a Forester Help? To establish the timber basis and appraise the FMV loss of the timber immediately before and after the casualty, you may need to consult a professional forester to determine the timber volume (generally in thousand board feet, cords, or tons) and timber prices at the acquisition time. Linda Wang is a national timber tax specialist with the U.S. Department of Agriculture’s Forest Service, based in Washington, D.C. International Year of Forests, 2011 Tree Farmer NOVEMBER/DECEMBER 2011 http://www.irs.gov/pub/irs-pdf/f4506t.pdf

Table of Contents for the Digital Edition of Tree Farmer - November/December 2011

Tree Farmer - November/December 2011
Contents
The Value of Certification
Markets Demand More Certified Wood
Tracking Through Chain of Custody
Farm Bill Progress Report
Corporate Policies Fuel Certification Efforts
Inspectors Explain Certification Goals
Certification: “Our Most Direct Impact”
Review Your Management Plan
Taxing Issues
Wildlife Matters
Woodland Security

Tree Farmer - November/December 2011