Basis in the World of Tax: Timber and Easements

Today, I wrap up my series on basis with a look at basis of timber and easements.

Basis of Timber

A qualified timber appraiser should perform a timber cruise at the time of the acquisition of the property. However, most times, this does not happen. A timber cruise can be performed at any time before the cutting of the timber, and in certain circumstances, even after the cutting. However, any timber growth since the purchase date reduces the fair market value that is established years later.

Since timber is usually purchased together with the land, and perhaps buildings and equipment, the purchase price for the entire property needs to be allocated between standing timber, land, buildings and personal property.

The cost of the appraisal adds to the basis of the timber. Please note, if the taxpayer does not obtain an appraisal, the basis of the timber is zero.

Easements

Generally, any compensation received for granting an easement for a limited use or for a limited period of time reduces the basis of that part of the property, per Rev. Rul. 68-291.A perpetual easement that denies the grantor any use of the property may be a sale of the property, even though the grantor retains legal title.

This article concludes my series on basis. Calculating basis can be complicated, and I hope this series helps simplify it so that you can provide excellent value to your clients.