FORESTRY UPDATE by Gary Allen Burns 2-16

For federal income tax purposes, pre-merchantable natural growth in stands of young timber can be appraised and allocated a reasonable basis proportional to their contribution to the total asset.

These all-aged stands may include trees from seedlings to saplings. They must, however, have sufficient stocking and occupy sufficient area to contribute value.

The basis value is the dollar amount attributable to the accumulated growth. While market values of comparable young stands are preferable, they are rarely available. Discounted cash flow analysis may be utilized for the internal rate of return.

At the time of the first thin, switch from acres to tons.

For naturally reforested young stands on property already owned, the basis is the capitalized cost attributed to controlling the undesirable competing vegetation, insects and animal pests necessary to the establishment of the trees.