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Setting a value of the timber is a sophisticated process. The board feet mentioned by cbslee are necessary because you need to measure what was available versus what was cut. Calculation of board feet as lumber is irrelevant because calculation of board feet as logs is 10-15% less because of what the sawmill figures they will lose in bark, knots, and irregularities in shape. Walnut is more expensive than most other wood species - up to 4X as valuable as pine. Today walnut is worth more than red oak, 15 years ago the reverse was true. Also, typically a landowner is paid 50% as much as what the logger can sell to a sawmill. This percentage drops as the contour of the land becomes extreme and difficult to transport the logs away. Real estate appraisers know the timber is there, but they are not necessarily qualified to assess it, so it is often ignored. Other complicating factors: over time, timber grows and creates more board feet than in younger years - but this is deceptive if the timber was mature and if so it reaches a point of maximum value and then begins to deteriorate. Timber is something that if you don't value it at the critical point in history, you lose the opportunity forever to have an accurate appraisal. Another difficulty is that timberland (forested land) is not worth more than pastureland just because it contains harvestable logs. Cattle cannot graze in forested land, nor can any row crops be raised.

LLCs do not default to Sch C. I have plenty on Sch E. They are simply disregarded for tax purposes.

I think depreciating the wrong amount for two years is an impermissible method and can use Form 3115, but I haven't had a client need that so haven't researched it. You've done a good job with IRS info. And, you're being a good person to explain your results to your client and her new tax preparer. If the new preparer is filing the returns now, you can wash your hands of it; you've done all you can do.

Wouldn't this also require, in addition to the 3115, a 481(a) cumulative adjustment on an expense line?

Yes, you can use 3115 to correct the depreciation that was deducted, either way, whether it was over depreciated or under depreciated.

Form 3115

I learn something new every day. Every. Day.

I can't provide the source of that from four years ago! Heck, I may not be able to remember what I wore or ate last week. I tried to answer before and lost the whole post, and not sure what happened there! As I understand it, in community property states, if the property is community property (not joint property that was brought into the marriage), then the 100% of the value of that property is included in the gross estate for valuation purposes and doesn't matter if a tax filing is necessary. For this to apply, at least 50% of the value must be included in the estate valuation, and if this is the case, then the spouse uses the stepped up basis on the entire property and depreciation starts over. I believe the references for this are: reg sec 1.1014-2(a)(5) and 1.1014-1, and IRC 1014(a) and 1014(b)(6)

Yes. Page 4 of the 3115, line 26 is where the cumulative adjustment would go, and flow to the tax return accordingly.

Edsel is the the official timber expert on this forum.

https://timbertax.org/

Maybe this Audit Technique Guide can help you find what you need: http://www.unclefed.com/SurviveIRS/MSSP/hardwd.pdf#xml=http://search.atomz.com/search/pdfhelper.tk?sp_o=4,100000,0

First you need to know how many board feet were sold. Second you need a logical valuation as of 2012 once you known the board feet. Without a quantity and a value, you're whistling in the dark with a zero basis.

I am so disgusted with the whole E-services mess. I was verified, then they could not verify me through my cell phone, which is ONLY in my name. I spent hours on the phone with a very nice man on the help desk . He finally gave up and said that he would mail me a new PIN. I never received it and then they sent me a letter saying that I had not verified my license from New York and were going to make my PTIn inactive. I am not in freaking New York! I called and wrote to them and at least my PTIN is OK. I will try to straighten out E-Services sometime in the next few years.

Put it on the client to find a solution via the attorneys.

Looks like I'm waiting 5 days. Glad this isn't during tax season or some other deadline.

Thank you all! That was the way I was leaning I just needed a little confirmation. I really see nothing changed except the age, however he was a full time student for half the year and lived with my client for the entire year.

Yes, let the father claim the exemption and the mother file as you did before, Head of Household with Earned Income credit. Your child must meet one [UNO] of the following: Be under age 19 at the end of the year and younger than you or your spouse, if you file a joint return Be a full-time student in at least five months of the year and under age 24 at the end of the year and younger than you or your spouse, if you file a joint return Be permanently and totally disabled at any time during the year and any age.

I will make one further observation and then I will shut up. Some states or local municipalities have a gross income tax. The $2700 would need to be reported for that purpose.