You just bought land – Now What?

You looked for land for sale for a long time.  Spent a lot of time, energy, and money and finally purchased that perfect tract of land for you and your family.  What’s one of the first things you should do?  If the property has any timber you should establish your timber basis, providing you didn’t have it appraised before purchase.  The basis should be established by a Registered Forester.

Why? You’ll need it when you either sell your timber or suffer a casualty loss.  When/if you sell the timber, you can subtract the basis from the sale amount to determine your tax liability.  If you have no basis then you’ll owe on the entire amount.  Here’s the tough one…casualty loss.   Here’s a quote from Dr. Linda Wang, Taxation Specialist, USDA Forest Service.

“Deductible casualty loss for timber held for business or investment purpose is the smaller of the adjusted basis of timber and the difference of the fair market value immediately before and after the casualty.”  Click HERE for the full article.

In layman’s terms, if you suffer $50,000 in timber loss from a tornado but have no basis…then you cannot claim a loss.  Here in central Alabama, tornados are frequent.  I’ve lost count of the number of landowners that have called me after a tornado and after they salvaged the timber and asked me to calculate a timber basis.  It is extremely difficult to come in after the fact and calculate a timber basis that I would be comfortable signing my name to the report.  In reality these owners had no idea they needed a basis until they went to their accountant and found out.  If I’m contacted after someone had either purchased land or inherited, I can determine the basis even if it was years ago.  I cruise the timber then discount the growth, look up the timber values at that time and establish the basis.

When I’m at the closing table representing either the seller or buyer, I’ll always mention to the buyer that they need to establish their timber basis.  They’ll need it sooner or later.  If you need any help, give me a call, 205-837-4466.