Last Minute Timber Sale Help Please!

[Terry D EA]

This is an area that I have little or no experience in. Client brings me form 1099S. Shows 14K of real estate proceeds that is for the sale of timber. Here is the problem. The person who received the 1099S is my client's father who is their dependent who only has SS income. The proceeds were from the sale of his mother's timber. His mother entered into a contract with someone to purchase the timber right before she died. The sale was finalized after she passed. The proceeds came to 9 of her children at 14K each. The 1099S forms were processed by the attorney who apparently handled the sale. Does my client's father get a step-up in basis or is his basis his mother's basis. This apparently is not an inheritance and is a sale. I could really use some direction with this. I already plan on extending the three returns brought to me that are affected by this situation.

[Terry D EA]

Well I though maybe I would get a reply by now. As I look into this, apparently it is not easy to determine basis of timber. Especially if a basis inventory of the timber wasn't taken or records kept from the purchase. I guess the first thing to do is contact the attorney that prepared the 1099S and see what he/she knows about the sale. Seems to be the most reasonable starting place.

[easytax]

Terry,   Search in this forum "basis of timber" .  Here is I hope the link to the first post:

    There are some solid (detailed) things to look at with web references, etc. and will take some time BUT might get you there --- or closer.  

I had luck getting the "basis" with one client by simply finding out who had done the "timbering" and then asking them what the "value" of what was -- timbered -- would have been the year the land was purchased, etc., then simply what was paid - less what was --- I lucked out greatly.   Here is hoping it works for you too.

 

[mcb39]

www.timbertax.org

 

[schirallicpa]

Generally - timber is gravy.  And subject to capital gains tax and that usually isn't a bad thing.  Unless the purchase contract detailed timber vs. land being purchased - which no one ever thinks to do - then there's not much cost basis there.  Or if the taxpayer is in the business of managing growth and cutting of timber, then its more complicated. But in your case, the kids were - well - taking the gravy.

The fact that people don't want to pay tax on the sale of timber is one of my pet peeves.  Come on- you didn't put a dime into it, and you just collected how many thousands of dollars as a pure gift of nature.  And you can't pay tax - let alone only cap gain tax?  

(I know - grumble, mumble.....)

[mcb39]

8 minutes ago, schirallicpa said:

Generally - timber is gravy.  And subject to capital gains tax and that usually isn't a bad thing.  Unless the purchase contract detailed timber vs. land being purchased - which no one ever thinks to do - then there's not much cost basis there.  Or if the taxpayer is in the business of managing growth and cutting of timber, then its more complicated. But in your case, the kids were - well - taking the gravy.

The fact that people don't want to pay tax on the sale of timber is one of my pet peeves.  Come on- you didn't put a dime into it, and you just collected how many thousands of dollars as a pure gift of nature.  And you can't pay tax - let alone only cap gain tax?  

(I know - grumble, mumble.....)

These are my thoughts exactly.  I have a lot of those timber sales and unless the seller gets an estimate of the value prior to the cutting; there is no basis.  They never turn out that badly because of the CG rules even though basis is zero.  You are correct in that they are selling the gravy, but still own the land. 

[Terry D EA]

One of the questions I have is I don't know if the land was sold with the timber or just the timber itself. I still think my first approach is to contact the attorney who processed the sale and find out what he knows. I also thought of the company who bought the timber to find out how and what was purchased.