Are timber sales ordinary income?

Investment Sales If your woodland is categorized as an investment, your standing timber sales are considered capital gains rather than ordinary income.

How do I avoid capital gains tax on timber sale?

The IRS code about timber sale taxation is a bit obscure. There are three main ways to reduce the tax bill; 1) report income as capital gains, 2) calculate the timber basis and depletion, and 3) keep receipts for all out-of-pocket expenses related to the timber sale.

Is income from the sale of timber taxable?

Profits from the sales of timber are tax free, rents and other revenue receipts from woodlands are liable to Income Tax.

How is timber income taxed?

When you sell timber, your revenue will either be taxed as Ordinary Income or Capital Gains. The tax rate for ordinary income is higher than capital gains tax rates. Your tax advisor can help you determine these payments. The landowner’s best tax advantage usually is through the provisions of capital gains.

How do you calculate cost basis for timber?

To calculate the proportionate value of each timber product, divide the appraised value of the product by the total appraised valued of the property. To calculate the original cost basis of each product, multiply its proportionate value, the decimal, by the total acquisition price.

Is growing timber considered farming?

If the profit motive is not met, your timber may be considered a hobby rather than business (losses from hobby activities are not deductible). Finally, timber is generally not treated the same as a business of farming for tax purposes.

Can timber be depreciated?

Depreciation, Sec. For timber held as an investment or a business, you may take depreciation on the assets used (for example, tractor, logging equipment, bridge, culvert, fence, or temporary road). Land is not depreciable.

Is income from forestry taxable?

In effect this means that Forest Grants, Forest Premiums, sale of forest thinnings and sale of clearfell are ALL exempt from Income Tax. Dividends paid by companies out of profits in respect of woodland income are exempt.

Is timber considered farming?

What are the tax rules for timber harvesting?

The federal tax rules that apply to timber growth and harvesting are, in many respects, counterintuitive to almost every “rule of thumb” related to the Internal Revenue Code. Timber is its own, special category of activity.

How to report income from sale of timber?

There are two ways to report the income received from a timber sale, depending on how the income is derived: Capital Gains- Schedule D: You may receive income by cutting timber and opting to treat that cutting as a sale, or by disposing of standing timber, which is known as stumpage.

What is the long term capital gains tax rate for timber?

long-term capital gains tax rate for timber is 15 percent (for taxpayers in the 10 or 15 percent ordinary income tax brackets, the maximum long-term capital gains rate is 15 percent). How to Qualify for Best Tax Treatment An investor may consider lump-sum timber sale proceeds long-term capital gains when certain holding-

Who is the best person to harvest timber?

In most circumstances, farmers and woodlot owners will have their best experience with timber harvesting if they work with a carefully selected forester and logger.