FORESTRY UPDATE by Gary Allen Burns 2-9

You may be able to defer gains from a timber sale on your federal income taxes by using installment sales (IRC section 453) if your timber ownership qualifies as a farm business (IRC section 2032 A). A lump-sum sale contract must be used, and the contract must provide for adequate interest on deferred payments as defined in the IRS regulations, or the taxpayer may be required to impute interest. The imputed interest rules, however, do not apply if the sale price is less than $3,000. If there is risk of default, the buyer may establish an irrevocable escrow account out of which some or all of the installment payments and interest are made.

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.