Sale of timber for individuals:

[Smitty]

Clients are NOT in business of selling timber, but sold several small plots of timber on their own personal property. How to determine cost basis of trees sold.

[dkh · Accepted solution]

I always enter $0.    My clients purchased the property w/o expectations of selling timber therefore the purchase price is for the land not the standing timber.

[Terry53029]

So @dkh  if the same client sold the land for a profit you would use a basis of $ 0, because they never expected to sell it ? Occasional sale of timber is sale of investment if kept longer than 1 year as a capital gain. It is considered an investment. While not easy it is possible to figure basis, and if the amount is large enough you should contact a professional. A place to start is: www.timbertax.org

[dkh]

My choice of wording was poor but I stand by using $0 as the basis for the sale of timber.  Whenever I have a client that sells some timber from his property I do not report any cost basis. However, I've never had a client that maintained a property strictly for harvesting timber.  All my clients situations have been property purchased with some wooded area that client had some good trees removed to put some money in their pocket.

And @Terry53029 , while I may not be a CHAMP,  I'm not an idiot.   While I find your follow up question 

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@Terry53029 wrote:

So @dkh  if the same client sold the land for a profit you would use a basis of $ 0, because they never expected to sell it ? 

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irritating, an oyster probably finds a bit of sand irritating also, so I'm off to make a beautiful gem.

[IRonMaN]

I am an idiot, but I try not to directly criticize someone even when they post something that I think may not be the most correctess of answers. I piss off enough people here without having to travel down that path.

Well, I should say I’m a recovering idiot since I started attending Idiots Anonymous classes earlier this year.  As far as oysters go, I’m sure I have created a lot of gems for Intuit since I have been irritating Intuit for years ————— without the benefit of sand.😜

[Terry53029]

I did not say you were an idiot @dkh just thought that your answer was an indication of inexperience. The Irs says this about capital assets: "Almost everything you own and use for personal or investment purposes is a capital asset. Examples include a home, personal-use items like household furnishings, and stocks or bonds held as investments. When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss. Generally, an asset's basis is its cost to the owner" As you can see Intent is not a factor in determining basis. The original poster's client should not have to pay more taxes than he should, because his/her preparer can't determine his basis. In timber sales basis is sometimes difficult to determine, and that is why there are a lot of professionals in that field that will find your basis for you. The main point is the client bought the land, and his basis is not zero. I apologize if my answer offended you, as it was only meant to help 

[IRonMaN]

"The main point is the client bought the land, and his basis is not zero."

Just for the sake of argument - what if you buy a piece of land that didn't have trees on but after a number of years the land self seeded and the trees were subsequently harvested?  In Minnesota poplar grows like weeds and go from saplings into harvestable trees in a relatively short period of time.  Poplar is a popular tree for the logging industry here.  I'm thinking "free" seeds wouldn't provide a lot of basis to the taxpayer.  

[Terry53029]

Hi @IRonMaN always glad to get your two cents, and like your hypothetical example His basis is not zero. Unfortunately the client did not get a basis shortly after he purchased it like the following example, but he can get a basis if desired.

Here is an example for a likely scenario for this client we are discussing:

Joe Smith paid $23,000 for 35 acres of timberland in 1982. He also paid $800 for legal
fees and other costs to acquire title to the property. He determined the basis of the timber shortly after
buying it. The timberland itself, not considering the timber, had an approximate fair market value
of $350 per acre in 1982. The total fair market value of the land was therefore $12,250. There
were approximately 63 MBF1 of average quality timber on the land in 1982. The value of timber in
1982 averaged $200 per MBF, giving a total value of $12,600 for the timber. The basis of the timber is determined by calculating the percentage of the total fair market value attributable to the timber and applying this percentage to the total acquisition cost. The total fair market value of $24,850 is the sum of the fair market values for the individual assets $12,250 for the land plus $12,600 for the timber. The timber accounts for 51% of this total ($12,600 divided by $24,800). The basis of the timber is $12,068, 51% of the $23,800 acquisition cost (0.51 x* 23,800). The basis of the land is $11,732, 49% of the
$23,800 acquisition cost (0.49 x* 23,800). The sum of the two percentages is 100 and the sum of the
two bases is $23,800, the acquisition cost. 

[qbteachmt]

"And @Terry53029 , while I may not be a CHAMP"

Whoa! That label is the designation created and doled out by Intuit. As I recall, when they changed from All Star to Champ, we all brought up that this seems poorly chosen. Don't use it as a weapon; no need to get personal.

[IRonMaN]

"Unfortunately the client did not get a basis shortly after he purchased it"

Maybe they did but Smitty hadn't asked the client that question yet 😃

We can make lots of assumptions but you know what happens when "assume" enters the conversation.  But I think the biggest lesson learned here is nobody should ever "assume" they know the level of experience of someone posting questions or of someone posting answers.  We are all here just trying to lend a hand and some of us are trying to have a little fun in the process.  Dkh has been a good addition to this place and I don't want to chase anybody away that also likes to have a little fun.   So hopefully we can chalk this whole post up to a learning event and everybody can live happily ever after ----------- no matter what their race or religion, or level or title may be.   

[dkh]

 Gee whiz......   I did use "CHAMP" - which is capitalized in the Intuit label - to get personal to make my point.    If @Terry53029  didn't like the answer I posted for @Smitty  all he/she had to do was post his own answer to the question asked.   There was no reason to belittle my answer - it irritated me.  An apology was given.  I've moved on.

I appreciate @IRonMaN  posting his "just for the sake of argument".    And  his politically correct way of disagreeing with my answer.........   @IRonMaN  wrote  " I try not to directly criticize someone even when they post something that I think may not be the most correctess of answers. "

Here's hoping we all have a relaxing weekend 🥂      

[IRonMaN]

Of course everyone is going to have a relaxing weekend because tax season is over.  Well, it's kinda over, except for those clients that own a Mayan calendar and don't realize it's over.  What the heck, was it over when the Germans bombed Pearl Harbor?  Of course not ------------------ this tax stuff never ends.