Timber Sales

[Tracy Lee]

I have a client who sold timber off his property; $9000.00 in 2017,  $86,000 in 2018 and $28,000 in 2019 .  He won't be selling anymore timber for another 10-15 years but will have firewood sales over the years.  He also bought some equipment to work his land as well so we are going to depreciate it.  Should I do a Schedule C or F?  I find reasons to do it either way.  The 2017 Tax Preparer used Schedule F, but acknowledged that he didn't really understand timber sales.  His basis for the timber in 2018 is 86,000.00 (of course there is a lot more to this story) and am I filing a Schedule D & 8949 to acknowledge the basis? Help.  This seems to be pretty complicated.

[Lion EA]

I know nothing about timber tax, but preparers have told me the following is a good site:

https://www.timbertax.org/

[Gail in Virginia]

Did he cut the timber himself or did he sell standing timber to someone else who cut it?  If he cut it himself, I would most likely use a Schedule F, and the basis would be the cost on the Schedule F.  Or if he is actually milling the timber before he sells it, I might use a Schedule C but I would still use the basis as the cost of goods sold.   If he sells it as standing timber, then I would use a schedule D/8949 to report the sale and the basis.  Using basis for the timber results in a reduction of basis on the land generally.  It can be pretty complicated.  And a lot depends on the facts and circumstances.  The IRS farm publication also has some information on timber sales, I believe.  Or at least it used to. 

[DANRVAN]

I have worked with small landowners and ranchers with occasional timber sales.  In these cases, I have taken the position that the taxpayer is not in the business of raising and harvesting timber and have reported on Schedule D.

On 10/3/2019 at 11:34 AM, Tracy Lee said:

His basis for the timber in 2018 is 86,000.00

I find it odd the basis equals sales, unless the land was recently inherited.  I have seen cases where tax preparers pull a number out of the hat to determine basis.  It can be tricky but using timber growth rates, and historical market prices a reasonable estimate is possible.

When dealing with timber keep in mind the $10,000 above line deduction for reforestation cost.