The nature of forestry operations entails costly tree planting, half-a-generation of care and nurturing, and prolonged risk exposure from fire, storm, tree disease and insect damage. The impact of taxing any gain from the eventual timber sales income can be very powerful.
Many landowners continue to pay more than their fair share of taxes on their timber income. Even if you use an accountant, you should understand how timber expenses and income are taxed, since some tax preparers are not well versed in tax treatment for forestry. Knowing the tax laws will give you an advantage in planning your forest management activities.
Although tax laws provide special incentives for timber growers, you may not be aware of or are confused by the tax treatment on timber. Adding to this frustration is the fact that there are relatively few professional tax services offered in the timber tax specialty. Furthermore, timberland owners must pay yearly property taxes, making timber tax a major expense without annual income to offset the cost.
TAX ASSISTANCE
Timber tax assistance, including timber income tax, timberland property tax and timber-related sales tax, is essential to ensure the healthy and sustainable development of timber resources in the state. To serve the need and gap in timber tax assistance, Texas A&M Forest Service provides timber tax education and training, conducts timber tax research and assesses the implications of timber tax laws and policies.
Our annual workshop provides basic information about timber taxation and the latest changes to tax laws and rules for tax return preparations. Topics generally focus on federal timber income tax issues for private forest owners with a refresher on local timberland property tax incentives. Participants gain a clear understanding of commonly misunderstood timber tax issues.
2017 Timber Income and Property Tax Workshop
Sponsored by Texas A&M Forest Service
and Texas Forestry Association
+ 2016 Texas Timber Tax Workshop Presentation Slides
- Introduction - Timber Income Tax (PDF, 4MB). This topic includes the process, various tax reforms, administration and other useful tax publications.
- Capital Expenditures (PDF, 3MB). Here is information on capital expenditures, recovery, the importance of records, purpose for owning timberland, basis, land account, merchantable timber account and pre-merchantable growth.
- Capital Expenditure Recovery (PDF, 2MB). Included in this portion of the presentation is information regarding land accounts, depreciation, timber (cost) depletion, reforestation amortization, investment tax credit and fertilizer.
- Forestry Operating, Management and Protection Expenses (PDF, 4MB). This is an overview of deductions (expensing), hobby farm rules, forest management and protection costs, passive activity loss rules and reporting timber expenses.
- Timber Sale Income (PDF, 5MB). Information in this chapter refers to capital gains tax rates, qualifying for long-term capital gains, reporting a timber transaction and the alternative minimum tax (AMT).
- Forestry Cost-share Payments (PDF, 1MB). Here is a general overview of how the tax codes treat cost-share payments and how timber owners are affected by cost-share programs.
- Income Leveling Strategies (PDF, 1MB). When harvesting small parcels is impractical, forest landowners can take advantage of deferred payment contracts and installment sales under IRC §453. This chapter explains how they work, what their limits are and the criteria to qualify for their use.
- Forms of Ownership (PDF, 2MB) . This section describes types of ownership: partnerships, S corporations, regular C corporations, LLCs and trusts and estates.
- Like-Kind Exchanges (PDF, 1MB). This section refers to tax implications of business or investment property (timberland) exchanges and how the courts have viewed them.
- Casualty Losses and Involuntary Conversions (PDF, 3MB). This section helps define casualty/non-casualty business losses; losses from theft; and the IRS position on casualty losses and involuntary conversions.
- Christmas Trees (PDF, 1MB). Included in this chapter is an overview of how the IRS views growing Christmas trees as a business.
- Tax Implications of Employment Status (PDF, 1MB). This is a look at how the IRS defines who an employee is and the information about certain employees that has to be reported to the IRS.
- Timber Aspects of Social Security Tax (PDF, 771KB). This chapter helps explain how timber income (timber sales, cost-share payments, incentive payments, etc.) is treated to determine Social Security taxes.
- Tax Effects on Investment Returns (PDF, 1MB). This chapter explains how capital expenditures, timber operating, managing and protection costs, reforestation, timber sales, cost-share payments, investment returns (after-tax) and interest rate adjustments affect tax.
- State Income Taxes (PDF, 924KB). Some states collect state income tax. Here’s an example of how the IRS helps states to collect their income taxes; and how those taxes are determined. This also shows state taxes in the South and the impact of those taxes.
Dr. Haney’s 2016 Timber Income Tax and Timberland Property Tax workbook, used at the 2016 Timber Tax Seminar, has detailed explanations of all of these topics. Limited copies of the workbook are available for $50. For additional information or questions about obtaining a copy of the workbook, please contact us at 979-458-6630.
+ Texas Timberland Property Tax Information
Timberland Property Tax in Texas (2016) (PDF, 985KB) covers how the property tax is determined, what kinds of state incentives are available for landowners, and updates on Texas tax laws related to timber management.
+ Contact
Dr. Rajan Parajuli
Forest Economist
200 Technology Way
College Station, TX 77845
Phone: 979-458-6630
Fax: 979-458-6633
rparajuli@tfs.tamu.edu