Timber contract

[tst]

Taxpayer bought land in April 2014 for investment

Paid $220,000 in April 2014

Started logging in JULY of 2014

Received 30,000 for share of logging split 50/50 with logger in July of 2014

Retains property-logging stopped in October 2014

The $30,000 appears to be ordinary income (not cap gain) as held property less than 1 year.

How to report and determine any Basis from $220000 purchase?

[rfassett]

Here is a pretty well written piece on timber sales.

 

http://www.fs.fed.us/cooperativeforestry/library/timbertax2012.pdf

 

 

As you will see from reading this, the easy thing to do is to have an appraisal of the timber at the time of purchase - and allocate that number to the whole timber lot - and then when you sell some (because hardly EVER is all of the timber sold) you would allocate that the basis based on the appraisal.  At this point (since the purchase and sale happened within the last year, I would probably tell the client to get in touch with a qualified forester and get me an appraiser of the timber.  This is no small task and your client you need to pay the fee.  The activity will involve the forester walking the property to take an inventory of the timber and then determine the value of that timber based on the April 2014 timber pricing and then adjusting for the timber already sold.  Without something like this in your arsenal you and the client are leaving it in the hands of the IRS to do their own allocation - and that allocation, lacking better support, will probably not be to you or your client's liking.  You should be aware that timber prices vary by type and current market and location. 

[mcb39]

www.timbertax.com