Question

Timber Sale

Forum|Forum|5 years ago
January 25, 2021
1 reply
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In July 2017, my wife inherited farm property in NC. The farm land and timber was appraised at that time. The farm largely just generates rental income, but this year, we have timber income. Is the income handled as ordinary income, and does the appraised value impact income?

E

ErnieS0

Timber income is considered investment income, not ordinary income. You will pay capital gains tax (since you owned the timber for more than one year) on any profit from the sale.

You said the farm land and timber were appraised when your wife inherited the property so the timber will have a value or cost basis separate from the land. Prorate the amount of timber cut from the total available in 2017 to come up with a cost for the amount sold. For example, if you cut 10% of the timber, the cost basis would be 10% of the timber’s 2017 value. Keep track of this for future sales so you know how much you will have left.

If the appraisal did not split the land from timber, allocate the appraised value between the land and timber. For example, if the fair market value of the land was $10,000 at the time and the value of the timber was also $10,000 then the appraised value would be divided 50/50. There is a good example in Determining Tax Basis of Timber by William L. Hoover, Professor of Forestry and Natural Resources, Purdue University.

To enter the sale in TurboTax see Where do I enter income from a timber sale?

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