Newsletter 1st Quarter 2018
Timberland Owner = Business Owner
There are many considerations when managing a forest: silviculture, wildlife, water quality, soil erosion, aesthetics, and recreation, among many others that vary depending on each landowner’s specific objectives. However, one consideration that is at the top of nearly all landowner’s objectives is maximizing income.
Tennessee Timber Consultants is a forestry consulting firm that works directly with private landowners in managing one of their most valuable assets, their forests. We work solely for you, the landowner, to not only ensure that your forest is being sustainably managed, but to also ensure that your property and your financial interests are protected. We are your agents.
When it comes to selling timber, you have to change your viewpoint from landowner to business owner because when you own timberland, you not only own a forest, you also own a Business. You have an inventory of product (trees/timber) that you wish to market to potential customers (sawmills, loggers, brokers, etc.) who wish to purchase that inventory.
Which begs the question, “How much timber do I have in inventory? How much is my timber worth?” For the average landowner, unless you obtain an appraisal, you simply don’t know. You are merely pricing your product based on what the buyer tells you it’s worth. Not all trees are created equal. Prices paid for standing timber relate to tree species, tree size and quality, logging access, logging terrain, and distance to markets in a fluid economic environment. On top of that, more than ever before, prices can also be dictated by export markets.
Just like trees, not all buyers’ markets are created equal. Some buyers may not only be able, but also willing to pay more than others based on their current individual markets and circumstances.
No one knows a buyer’s markets and circumstances except that buyer and those involved in running his or her business. This is precisely why we advertise our sales near and far, online and offline to get our clients the best offer possible for their timber.
It is vital that landowners understand that selling timber is not an event, it is a process. When you hire Tennessee Timber Consultants to sell your timber, you are hiring us for the entire process, from beginning to end. While being mindful of the landowner’s objectives, we determine:
- Forest Conditions on a stand by stand basis
- When and Where to harvest
- What type of management system to implement within each stand
- Thinning, Group selection, Single-tree selection, Retention harvest, Clearcut, etc.
- How much timber is being sold
- Total acres within the sale area
- Total number of trees to be sold
- Total volume (boardfeet, tonnage) to be sold
- What the fair market value of that timber is
- Develop a sale prospectus for the timber being sold
- Including volume, but not value of the timber
- Including Terms and Conditions of the sale so all buyers are on an even playing field.
- Market/advertise to all reputable buyers in the region
- Sell your timber through a sealed bid, lump-sum situation (in most cases)
- Assist you in executing a timber contract/deed with the eventual purchaser
- Monitor logging operations from start to finish
- Establish a Tax Basis for the timber sold
For those of us in the industry like timber buyers and consulting foresters, it’s nothing new; we do this on a daily basis. But, for the average landowner, selling timber can be a once-in-a-lifetime opportunity and should be managed as such. If done properly, quality timber can be managed in perpetuity. Unfortunately, in most situations it takes decades before we see the result. We may not be around to reap the benefits, but those that we leave behind will be. For more information regarding selling timber and other forest management services, explore our “Woodland Owners Forestry Guide.”
The Agricultural, Forest, and Open Space Act of 1976 (Greenbelt Law) is a law that allows for a property tax break for certain land uses. Under this Act, properties classified as farmland, forestland, or open space land can receive a tax break by being taxed based on the present use value of the property rather than the market value.
In order to qualify for the Greenbelt tax breaks for forestland, a landowner:
- Must own a minimum of fifteen (15) acres of sustainably managed forestland
- Must have a forest management plan
- Cannot exceed 1500 acres per county
- Must apply before March 1st
- If approved, the application must be recorded at the county register’s office
If you qualify for forestland greenbelt, or have questions about forest greenbelt contact us at 731-968-2953.
Establishing a Timber Tax Basis
Determining a timber tax basis is dependent on how the property was acquired, meaning whether it was purchased, inherited, or gifted. It is extremely important to establish a tax basis in order to prevent paying undue taxes. The following is not a complete guide to determining a tax basis, it is simply an introduction. An accountant should always be consulted when establishing one’s tax exposure on a timber sale.
Determining a tax basis for purchased timberland is fairly simple; subtract a realistic bare dirt value from the purchase price, including all acquisition costs (i.e. legal fees, title opinion, consulting forester fees, etc.) and apply the rest to the timber basis. This becomes a little more complex when other assets (i.e. house, barn, etc.) are involved. It is always a good idea to obtain an appraisal to establish the fair market value of the timber when purchasing timberland.
Establishing a tax basis for inherited property is similar to purchased property. Typically, if property is inherited, the basis would be the fair market value of the timber on the date of death. An appraisal should be obtained to establish the fair market value of the timber when the property is acquired.
Gifted property is where many landowners run into problems with capital gains taxes. When property is gifted, the donor’s basis is also transferred; therefore, the donor’s basis becomes the recipient’s basis. If the property has been in the family for many years, the donor has likely sold timber in the past and possibly does not have a basis, or it is marginal resulting in high tax exposure.
Establishing a timber tax basis should be done when the property is acquired. It is recommended to list the value of bare land and the value of the timber separately in the contract. The value allocated to the timber will be the timber tax basis. However, if this is not done at the time of acquisition, Tennessee Timber Consultants can appraise the standing timber and establish a timber tax basis by essentially growing a forest backwards at an average annual growth rate depending on site conditions specific to the tract.
If you have questions about your tax basis, give us a call at 731-968-2953.