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Timberland

Timber Topic: Save Taxes & Grow Trees

August 7, 2018

This is part 3 of a 5 part series on Timber.

In part 1, we looked at some of the factors that affect timber value, and in part 2 we reviewed how foresters assess timber on a property.

In this section, we’ll look at Timber Management Plans and Present Use Value.

WHAT’S A TIMBER OR FOREST MANAGEMENT PLAN?

When most clients hear talk of a timber management plan, they fear the sound of chainsaws and imagine clear-cutting of their forest. But in reality, a Timber Management Plan is focused on achieving landowner objectives. Those objectives could be to grow commercial timber for income, wildlife preservation, forest health, water quality integrity or any other use.

The plans are normally written by licensed foresters. They describe the property, proposed management, available forest resources, concerns such as fire hazards or invasive species, and recommendations to be implemented to achieve the landowner objectives.

The plan provides the landowner with an implementable strategy on how to manage the forest to achieve their objectives.

PRESENT USE VALUE = LOWER PROPERTY TAXES

Reference: Present-Use Value Program Guide, Jan 1, 2018

In North Carolina, the present use value program “allows certain agricultural land, horticultural land, and forestland to be assessed at its present-use value.” That is, for it to be taxed “based solely on its ability to produce income.” This is a tax deferment and not technically a reduction in tax rate (see Risks below). They consider forestland to be “land that is actively engaged in the commercial growing of trees.” Note that a Christmas tree farm falls under horticultural use and not forestland.

To qualify for Present Use Value:

  1. The land must be individually owned but may include some trusts or other qualifying forms of ownership.
  2. It must be a minimum size (forestland must have at least 20 acres actively engaged in commercial growing of trees and excludes home sites).
  3. Agricultural and horticultural land must produce annual income. However, there is no income requirement for forestland.
  4. It must be under sound management. For forestland, that means a plan for the “commercial production and sale of forest products.” This requirement is met with a Timber Management Plan drafted by a licensed forester.

Present Use Value also includes special provisions for land in the Conservation Reserve Program and may still be utilized where conservation easements are in place if they allow the harvest of timber.

Applications for new properties to be placed in the Present Use Value program are submitted to the county tax assessor’s office and each county has different timelines for submission and review.

BENEFITS

Ultimately, the benefit of having timber under a timber or forest management plan and in the Present Use Value taxation is that the property taxes will be significantly reduced. In several client examples, I’ve witnessed 80-90% reduction in taxes, though individual results vary. And it is a non-permanent program, meaning that a landowner may decide to stop participating (i.e., stop growing timber and subdivide the property to build homes).

RISKS

Because the program requires compliance with certain rules and is non-permanent, there are also consequences for removing property from the program. A landowner with property that becomes disqualified will, in most instances, be billed the deferred taxes for the year of disqualification and the prior three years with interest. For properties that have existing tax deferments in place, understanding if the new owner will continue that use is essential.

Additional information on this is also available from the NC Forest Service.

CONCLUSION

As always, these are complicated issues and every person, entity, and property will be different. Anyone considering buying or selling a property in the present-use value program should consult with a team of experts including a tax advisor, legal counsel, forester, and land broker.

I help my clients understand land and provide them with education and knowledge to make informed decisions. If you’re looking for a professional land broker or need help understanding land issues like this, let me know! Pat Snyder, psnyder@nationalland.com, www.nationalland.com.

About the Author
Pat Snyder joined National Land Realty in 2018. Pat is a retired US Air Force Officer with over 20 years of service and has several years of real estate experience. He is a Realtors Land Institute (RLI) member, Certified Negotiations Expert, and a Military Relocation Professional. He also serves as a board member on the Asheville Rotary Club and Blue Ridge Honor Flight. As a Land Professional in Western North Carolina, Pat enjoys educating clients on land sales and purchases and hiking properties with them. He also likes to work with other professionals to help his clients understand the opportunities and challenges of a land transaction, and help sellers get their land to stand out as an exceptional property to buyers before hitting the market. Pat holds a MA in Military Operational Arts and Science from Air University, a MS in Information Management Technology from Grantham University, and a BS in Management Information Systems from the University of Nebraska-Omaha. Pat enjoys spending time hiking, doing volunteer work and cooking. He and his wife Michelle have a son, Barrett, and a dog named Bacon. View Pat's Listings and Reviews on NationalLand.com