When forestland owners sell their timber, the revenue is treated by the IRS as CAPITAL GAINS. This means that taxes will be paid on the gain in timber value since the date of original purchase. Let's say you bought a 35-acre property in 1992, forty years after the timber was last harvested. You then sell the timber in 2006, when the timber is now 54 years old. When you purchased the property in 1992, the value of the timber at that time is your BASIS. The value of the timber in 2006 (the sales price) minus your Basis in 1992 is your GAIN, and this difference is what you will pay taxes on- probably at a rate of 15%.



Landowners who have owned their timberland for decades will pay more taxes when they sell timber, because they have a higher GAIN. Conversely, those who have held their timberland for only a short period before selling timber will have less tax liability, because there will be a smaller gap between their BASIS and their GAIN. In either situation, having a Basis Appraisal prepared by a qualified professional will almost always save you money come April 15th!

A basis appraisal can be done at the time of acquistion (when the land and timber are purchased)- in this case it is essentially a timber cruise that estimates current volume and fair market value. More often, Ridgerunner is called upon to establish a timber BASIS for landowners after they have sold their timber, and any number of years from the original date of purchase. We do this by calculating the percentage of growth since the date of purchase. If we have sold the landowner's timber, we will already have an up-to-date timber cruise. In this case, we must "un-grow" the trees to determine the volume at the time of purchase, and appraise that volume based on historical stumpage prices. This involves either measuring the stumps if the harvest has already occurred (the easy way), or by coring the trees and measuring the incremental growth (the hard way).

Needless to say, landowners who pay taxes on the full sale amount, instead of just the GAIN, will pay the IRS much, much more than they are liable for! Whether you choose to have Ridgerunner sell your timber (the easy way), or you sell it on your own (the hard way), PLEASE contact us to discuss the money you will save by having a basis appraisal prepared. Ridgerunner has completed dozens of these over the years, and regularly attends workshops to keep up-to-date on current tax laws. We are not CPA's, however, and therefore recommend that you seek the advice of a qualified accountant regarding your particular situation.