Revenue from a timber sale is taxable, but how it is taxed, either as ordinary income or capital gains, depends on your reason for owning the land. The IRS rules regarding timber taxation are complex, and not all tax professionals are familiar with them.
If you own forestland or plan to harvest timber, it’s important to prepare early and seek the right expertise.
Considerations for Landowners
- Consult a Qualified Tax Professional: Work with a tax advisor who has experience in timber taxation. This should be done when you acquire the timberland—and again before any timber sale.
- Keep Good Records: Even simple organization, like saving all invoices and receipts, can make a big difference when it comes to accurate reporting.
- Establish a Timber Basis: A cost basis must be established to properly calculate taxes. If your land was inherited or purchased long ago, determining this may take additional effort, but it’s essential for tax planning.