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168 <br /> i <br /> 1) the purchase price of your timber on the day that you purchased that timber <br /> (probably purchased with the Iand). <br /> 2) the fair market value at date of death in the case of inheritance (assuming the <br /> estate was valued at full fair market value, including the timber). <br /> 3) the donor's basis if the timber is received by gift. <br /> 4) all capitalized reforestation expenditures (If you planted the trees and did not <br /> expense the reforestation costs, then your basis will be the cost of <br /> reforestation). <br /> The adjusted basis will be the original basis plus any capitalized annual management <br /> expenses or less any depletion, casualty loss, amortization or other tax write-off of basis <br /> dollars. <br /> It is very important to establish your basis before the timber sale in order to reduce <br /> the amount of your federal taxes. This basis should be established by a registered <br /> forester and should be assigned BEFORE the timber is cut. <br /> Taxation of Timber Sale Income--Capital Gains <br /> ✓ Timber is real property and is therefore a capital asset(like land or houses). <br /> ✓ When you sell timber, the money you make (minus the costs of selling timber and <br /> minus your timber basis) is a"long-term capital gain", assuming that you have owned <br /> the timber for more than one year. <br /> ✓ The Federal Government taxes "long-term capital gains" at a lower rate than regular <br /> income (wages or farm income). <br /> ✓ The top "capital gains" rate is currently set at 15%while tax rates on regular income <br /> can be as high as 35%. Additionally, "capital gains" are not subject to self- <br /> employment taxation(currently 15%) as is farm income. <br /> ✓ As you can see, reporting timber sale income as a"capital gain" can greatly reduce <br /> your tax burden. <br /> ✓ You may want to enlist the services of tax accountant who is familiar with the <br /> minutia of forestry taxation. <br /> Reforestation <br /> Following harvest,you should contact us immediately so a reforestation plan can be <br /> prepared. Site preparation can run as high as $250 per acre; however, it is usually much <br /> less and is often nothing. Planting tree seedlings costs about $75 per acre. All <br /> reforestation costs are eligible for cost-share funds that pay up to 40% of the total cost. <br /> 15 <br />