(02/22/18) RUSTON, La. – Knowing how the timber industry operates is vital for timber landowners trying to navigate complicated and constantly changing tax laws, said USDA Forest Service national timber tax specialist Linda Wang at the Tax Issues for Forest Landowners seminar held Feb. 9 in Ruston.
The LSU AgCenter partnered with Louisiana Tech University to sponsor the workshop held at Lomax Hall on the Louisiana Tech campus.
The workshop covered general tax terms and classifications, eligible deductions and cost share payments, record-keeping and reporting income, casualty lost and theft, and calculating timber basis and forest planting cost deductions.
“Tax issues are consistently one of the top concerns for private forest owners,” Wang said.
Timber is a long-term investment without annual income to offset costs, and many small landowners are unaware that most timber sales qualify for long-term capital gains, which offer a more favorable tax rate than ordinary income rates, she said.
AgCenter forest economist Shaun Tanger said smaller timber landowners have more tax advantages if they classify as investors who grow timber for profit rather than as personal use property owners.
The best way to secure investment status for tax purposes is to develop a forest management plan that includes a statement of intent to sell timber for profit, Wang said.
In absence of a plan, a simple document stating that the property will be used to generate income will suffice, Wang said.
“Tax savings can make or break an investment,” said Louisiana Forest Association vice president Paul Spillers, a Monroe tax attorney who attended the workshop.
Establishing the tax basis correctly on timber property is critical for taking advantage of available tax deductions, he said.
The tax basis of any property is determined by the initial cost of the purchase or value of the exchange, or in the case of inheritance, the fair market value of the property at the time of possession.
Wang said that timber basis is unique because it is calculated separately from land, and should be adjusted annually as the volume of timber assets on forest property grows each year.
“I started an investment plan years ago and never finished it, so now I’m going back to review my basis and build on my plan,” David Bullard, a Winn parish landowner, said.
Bullard said learning how to adjust his timber tax basis, getting clarification of the differences in the personal use property, investment and business classifications for tax purposes were most helpful.
Tanger said organizing and managing forest property in tracts or blocks improves record-keeping and can be important in determining loss of timber assets from casualty, theft or condemnation.
Separating different types of timber land into tracts may be worthwhile, but more blocks means more paperwork, Tanger said.
“Casualty loss is pretty common in Louisiana,” Tanger said, citing catastrophic events such as hurricanes and floods.
Deductions from a casualty loss seldom equals the full value of the product and are limited to the adjusted basis of the damaged timber, he said.
Rapides Parish landowner Horace White plans to reorganize his record-keeping and said the tips on how to set up management areas into tracts was extremely valuable.
“We really haven’t set up our records in blocks, and that is one thing we have to start doing,” White said.
Tanger said the workshop goal was to help participants feel more comfortable establishing a dialog with their tax accountant, calculating basis on their timber property, and filing for all eligible deductions.
“Many tax accountants are not familiar with timber tax forms or have dealt with timber property, so landowners could miss valuable deductions,” Tanger said.
Massive changes in the new tax laws going into effect for 2018 have presented some surprises affecting timber landowners, Wang said.
Wang said the USDA Forest Service will host a one-hour free webinar set for March 2 at noon Central time to explain income tax reporting rules and help forest landowners file 2017 tax returns and plan for new tax law changes in 2018.
Additional tax guides for private forest landowners, foresters, loggers and other timber businesses can be obtained online at https://timbertax.org/.
Linda Wang, a USDA Forest Service national timber tax specialist peaks at the Tax Issues for Forest Landowners seminar held Feb. 9 in Ruston. (Photo by Karol Osborne, LSU AgCenter)