Establishing a timber tax basis can save you money

Larry Godsey, an economist with the Center for Agroforestry at the University of Missouri, has a question about your timber stand: “What is your basis?”

If you scratch your head rather than answer right away, you’re not alone. A lot of woodland owners don’t know, and that means they could be selling their timber for too little, and paying too much in taxes.

Put simply, the basis, also known as the tax basis, is what you invested in an asset. “Basically, it’s what you paid for it or its fair market value on the day it was acquired,” Godsey said.

While many woodland owners probably have the basis for their entire property—which might include cropland and buildings as well as forest—they may not have established what portion of the original purchase price went to acquiring the timber.

Timber is usually taxed as a long-term capital gain, so you can subtract the cost basis when figuring your tax liability. But if you don’t have the basis, you have to pay tax on the full amount of the sale.

Flooding and tornadoes took out a lot of trees in 2011, and you can declare those trees as a casualty loss-but again, only if you have a basis.

It’s possible to establish a cost basis retroactively by hiring a forester to cruise the timber and “ungrow” the trees, but that can be expensive.

“When you acquire the property, hire a consulting forester to estimate the volume and value of your timber,” Godsey said. You can adjust your basis to reflect additional investments—including the forester’s fee.

If you have inherited the woodland, and therefore didn’t pay anything at all to acquire your timber, you can still establish a cost basis using the appraised market value of the timber, he said.

For more information about timber and taxes, Godsey recommends Internal Revenue Service publication 225, Farmer’s Tax Guide, available at www.irs.gov/publications/p225/.

“Pink slime” and raw milk claim victims of different kinds

You are sure to have heard of the controversy surrounding lean finely textured beef. The product came to be labeled “pink slime” in March as media outlets highlighted the practice of harvesting beef from fat trimmings using ammonia gas as a way to raise the product’s pH enough to kill off bacteria.

The media reports told consumers that the beef product was blended into vast amounts of ground beef for sale in supermarkets around the country. In the weeks that followed, major wholesale ground beef buyers said they would stop accepting ground beef with lean finely textured beef as a component. Some later relented on that promise, as the beef industry rallied to explain how common ammonia-treated products are in various food preparation systems. Regardless of the long-term outcome of the controversy, consumer confidence in the food chain was shaken yet again. This story, like so many sensational stories about food, grew from a simple foundational truth: consumers don’t know much about where their food comes from but reserve the right to be surprised and overwrought when they learn more.