Owning timberland offers unique opportunities and responsibilities, especially when it comes to harvesting and managing timber. Understanding the financial and tax implications of timber is crucial for maximizing the long-term value of timberland.

During a recent episode of the National Land Podcast featuring GA Land Professional Steve Chapman and Dr. Yanshu Li from the University of Georgia, two key terms for timberland owners were discussed at length: “timber account” and “timber basis.” These concepts are essential for organizing timber assets, making informed management decisions, and calculating potential gains or losses from timber harvests.

Here’s what to know about a timber account vs a timber basis!

What is a Timber Account?

A timber account is a financial record that tracks the value of timber on a property over time. It functions as a management tool for monitoring timber assets, enabling effective tax reporting, harvest planning, and informed decision-making. The account provides a snapshot of the timber resource, capturing both the quantity and value of timber as it grows and changes due to natural processes, management practices, or timber harvests.

Timber accounts play an important role in tracking the original cost of acquiring the timber (known as the timber basis), any changes to its value, and the volume of timber available for sale. Maintaining a timber account allows landowners to manage their resources more efficiently, prepare for future timber sales, ensure compliance with tax laws, and take full advantage of potential deductions or benefits.

Understanding Timber Basis

The timber basis is the original value assigned to the timber when it’s acquired. This value is vital because it’s used to calculate any taxable gain or deductible loss when the timber is harvested or sold. Timber basis can be seen as the “cost” of the timber, similar to how a stockholder’s basis in shares is the price they paid for the stock.

Timber basis can be further divided into two key types: initial basis and adjusted basis.

Initial Basis

The initial basis represents the original cost or value of the timber at the time of acquisition. This calculation can vary depending on how the timber was obtained. For instance, if the timber was purchased along with the land, the cost of the timber is typically allocated separately from the cost of the land. 

If the timber was inherited, the basis is usually the fair market value of the timber at the time of the previous owner’s death. When timber is received as a gift, the donor’s adjusted basis generally becomes the recipient’s initial basis.

Initial basis is typically calculated via a timber cruise, which is an inventory of the timber on a property done by a registered forester. Learn more about basis and timber cruises here!

Adjusted Basis

The adjusted basis takes into account changes in the timber’s value since its acquisition. As timber grows or is harvested, its value fluctuates. The adjusted basis reflects these changes, either increasing or decreasing depending on the activities on the land. 

For example, the adjusted basis would increase if new timber is planted or natural growth occurs. Conversely, the basis would decrease if timber is harvested or lost due to events like storms, fires, or disease.

Maintaining accurate records of these adjustments is crucial because they directly impact the calculation of gain or loss at the time of a timber harvest. The difference between the sale price of the timber and the adjusted basis determines the taxable gain or deductible loss that a landowner would report. Failing to keep an accurate record could leave a landowner in hot water come tax season, which is why maintaining a current adjusted basis is an important aspect of owning timberland.

Understanding the concepts of a timber account and timber basis is fundamental for timberland owners. By meticulously tracking the timber’s value and making necessary adjustments, landowners can ensure accurate tax reporting and make informed decisions about the timing and management of timber harvests.

If you’ve got questions about timber accounts or calculating timber basis, get in touch with your local Land Professional today!