FORESTRY UPDATE by Gary Allen Burns 2-2

If your timber value is more than the purchase price of the entire real estate, the IRS requires that you proportionately allocate the fair market estimates of three categories; i.e., the land account, the depreciable real property improvement account and the timber account. This allocation is necessary even if it has to be done many years later.

The purchase price is the actual amount you paid to acquire the real property; i.e., land, timber and improvements. This also includes timber cruises, surveys and legal fees. The land account consists of the bare soil and non-depreciable land improvements; i.e., permanent improvements, either acquired or constructed, such as dams, earthen impoundments, land-leveling, permanent roads, etc. Permanent roads remain useful for an indefinite period and can be used indefinitely for multiple purposes, including logging, planting, fire control and future management activities. The cost of protecting title to timberland and combating adverse possession must also be capitalized in the land account.

The depreciable real property improvement account includes buildings (20 or 39 years recovery) and temporary roads, as well as culverts, bridges and fences, which are given a 15-year recovery. The timber accounts are used to claim a timber depletion deduction or to recover the timber basis. You need to show the quantity and dollar value (basis). Quantity in merchantable accounts is in volume measurements, while quantity in pre-merchantable accounts is recorded in acres.

Similar Posts