Jim Timber
5 year old buck +
You're captain and commander - but any restrictions you dream up might harm your bottom line.
Would you plant ahead of logging?
- Thread starter chummer
- Start date
You're captain and commander - but any restrictions you dream up might harm your bottom line.
Bowsnbucks
5 year old buck +
We're having 4 to 5 acres timbered - more of a TSI than a clear-cut. The logger said just let him know where we want the cutting to take place, give him the boundaries, and mark any trees we want saved. Then he'd give us a bid on the timber we make available to him for cutting. What we allow him to cut might affect our $$$ made on the sale, but we're trying to let some mature oak & hickory stand for seed production. We could make more by letting him cut ALL of them, but we'd be passing up some free seed / mast production. Wringing every dollar out of the woods has a COST as well as a benefit. Long-term gain more valuable than a few extra dollars now. FWIW.
Jim Timber
5 year old buck +
Capital gains aren't tiered like income brackets. It's whatever the rate on investments is and that's all. Keep in mind you'll need a basis for the gains - you purchased the land with the timber value, your gains are only what's grown since that acquisition, not the whole harvest.
If you chop it up into too many little pieces, you might not see a dime out of the sale. Loggers have a lot of money into moving their equipment from site to site. If it costs them 5K to bring the skidders and fellerbuncher in, build a landing, make some improved heavy use trails; and you only harvest 10K worth of wood, that cutting isn't going to pay you anything (you might get a bill).
If you chop it up into too many little pieces, you might not see a dime out of the sale. Loggers have a lot of money into moving their equipment from site to site. If it costs them 5K to bring the skidders and fellerbuncher in, build a landing, make some improved heavy use trails; and you only harvest 10K worth of wood, that cutting isn't going to pay you anything (you might get a bill).
Jim Timber
5 year old buck +
You also need to hold it for a year before you qualify for capital gains.
Freeborn can do a better job explaining the tax implications.
Freeborn can do a better job explaining the tax implications.
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Jim Timber
5 year old buck +
Yup. It's potentially a big hit to your tax bracket if you don't.
Bowsnbucks
5 year old buck +
From a strictly habitat perspective, staggered cuts are the better way to go. More diversity, age structure, etc. From a monetary / tax standpoint, that's up to a tax expert. I'm not a tax attorney or CPA ( as most of us here probably aren't ), so it'll be up to Chummer to decide which way he wants to go once he learns the options available to him tax-wise. If he's trying to maximize his return on timber sales, he may want to go the tax efficiency route, vs. long term habitat benefit maximization. If he chooses to get all cutting done at the same time, he could still make 2 or 3 separate cuts - geographically. That might be smarter habitat - wise just to break up the terrain, rather than have one big square patch cut. I'd tell my tax man what I'd like to accomplish habitat - wise, and ask him if it's feasible from a $ gain / tax standpoint. After his advice is given, one could then make a better, informed choice as to how to proceed.
chummer
5 year old buck +
I definitely need to talk to my accountant. It is even more complicated than just the timber. I am using the proceeds from selling my business to buy the land. That is why I want to get as much money back as soon as possible. That was a promise to my wife. I know I am going to have capital gains on the business sale, I don't want more pilled on from timber sales. My understanding was the best tax advantage was to cut everything ASAP and then that would go against the purchase price, thus limiting the tax. It sounds like that is wrong.
Jim Timber
5 year old buck +
What exists there now goes against the purchase price regardless, but if you profit, those profits are counted as earned income (regular course of business, and taxed according to how much you make). If you hold the property for a year, you get to drop down to the capital gains rate on anything above the value you purchased the asset for.
Freeborn is an accountant. He might not want to jump in here though since he's not getting paid for the liability of providing the advice. ;)
Freeborn is an accountant. He might not want to jump in here though since he's not getting paid for the liability of providing the advice. ;)
Bowsnbucks
5 year old buck +
Use the time for planning what you're gonna do as far as plot locations, apple tree - crab apple tree spots, etc. If you burn wood, cut some of the smaller, damaged or crooked trees for firewood and in doing so, maybe clear a " road " for the loggers once they do get in there. The money will be in the big saw or veneer logs. If your boundaries aren't marked, you could post or mark the lines with a few cans of spray paint. Look for any potential drainage probs. for when the loggers get there. We had to beef up a spot when we had logging done at my camp so the equipment didn't create a sinkhole.
There's all kinds of things to keep busy with and prepare for when you DO get logged. If you have ferns or invasive plants, this year would be the perfect time to spray those and get 'em killed off. After logging, seedlings and stump sprouts won't have to compete with them so you'll get faster regeneration. Other guys may have additional ideas, but there's a start !!
There's all kinds of things to keep busy with and prepare for when you DO get logged. If you have ferns or invasive plants, this year would be the perfect time to spray those and get 'em killed off. After logging, seedlings and stump sprouts won't have to compete with them so you'll get faster regeneration. Other guys may have additional ideas, but there's a start !!
West Branch
5 year old buck +
Yes, that is essentially correct.
Say you pay $100,000 for 100 acres this month. You are buying timber and land. The forester appraises the timber that you want sold and gets a bid at $50,000 and that's what you get paid for the timber when logged in the next few months, your basis in that timber is $50,000.
So you report a short term capital gain with proceeds of $50,000 and a basis of $50,000 for zero net income affect.
Your new basis on the whole property is $50,000 (500/acre). So if you sell the land in 5 years for $100,000 you will have a long term capital gain of $50,000. Which could be deferred with a 1031 exchange if handled properly. Sounds like you better check with your accountant again if he said it wouldn't work ;).
None of the above post is tax advice, just some friendly habitat related advice :p
edit: tried to clarify wording
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chummer
5 year old buck +
Thank you for the help.
Ok this is what he told me except I have to hold the land for 1 year first. If I don't wait 1 year it goes as ordinary income. Does that not sound right, from one fellow habitat junkie to another? In his defense he is extremely busy from now until tax season ends. Maybe I didn't explain it right to him, it was a 30 second call.
West Branch
5 year old buck +
No reason to hold it for a year. He may have misunderstood, or else he may not have much experience with timber sales.
See the presentation pdf at this link. Although, it may make it more confusing since there is a lot of info there. Your tax preparer would only need to use form 8949 and Sch D for reporting.
http://www.forestrywebinars.net/webinars/timber-tax-update-for-the-2014-tax-year-2
I think a lot of people get thrown off with the ordinary income vs. capital gain. If it is a short term capital gain (less than a year) it is taxed at ordinary income rates but it is still a capital gain income. When held more than one year it is taxed at capital gain rates. In both cases the gross proceeds are reduced by your basis in the property.
See a copy of Schedule D here. Top half is short term and bottom half is long term.
http://www.irs.gov/pub/irs-pdf/f1040sd.pdf
I am also very busy until April 15, but I am taking a partial break today after a hectic past month. So if you catch my drift I know a little bit about taxes. I was trying not to think about work for a few hours and look what happened :D
chummer
5 year old buck +
Sorry I know you guys are slammed till the 15th. Thanks for the help. Hopefully it will be getting logged this year!
