Calculating timber loss for woodland owners

              Forest Disaster
Factsheet
http://www.ces.ncsu.edu/fore
stry/programs/disaster.php
Extension Forestry
Campus Box 8008
NC State University
Raleigh, NC 27695-8008
Calculating
Timber
Loss
for
Woodland
Owners
1
Timber
losses
caused
by
natural
or
other
external
forces
acting
in
a
sudden,
unexpected
or
unusual
manner
may
entitle
a
timber
owner
to
a
casualty
loss
deduction.
To
qualify
as
a
casualty
loss,
the
damage
must
actually
result
in
rendering
timber
unfit
for
use.
This
would
include
trees,
which
are
blown
down,
tops
are
severed,
trunks
are
split
or
other
damage,
which
stops
growth
or
results
in
death
of
tree.
Damage
that
reduces
the
rate
of
growth
or
the
quality
of
future
timber
is
not
a
casualty
loss.
To
qualify
as
a
deduction,
the
casualty
loss
must
have
occurred
during
the
tax
year
in
which
the
deduction
is
claimed.
Casualty
losses
are
reported
using
Federal
Form
4684.
Documentation
consisting
of
the
date
of
the
casualty,
the
location
of
the
damaged
property,
property
appraisals,
and
photographs
of
the
property
before
and
after
the
disaster
should
be
maintained
by
the
taxpayer.
Casualty
loss
deductions
are
limited
to
the
amount
of
the
adjusted
basis
in
the
timber.
Gain
or
loss
from
a
casualty
would
be
computed
as
follows:
Gain
or
Loss
=
(T
+
I)
–
C
Where
T
is
Total
sales
receipts
from
the
sale
of
the
damaged
timber
(salvage)
I
is
insurance
payment
received
because
of
damage
to
the
timber
C
is
Cost
or
other
basis
in
timber
and
expenses
of
sale
Gain
or
Loss
is
Net
gain
or
loss
Casualty
Loss
in
Pre-­‐merchantable
Stands
Plantations
or
young
growth
natural
stands
(which
are
not
yet
merchantable
size
or
age)
destroyed
by
casualty
may
entitle
a
landowner
to
claim
a
loss
if
pre-­‐merchantable
plantation
and/or
young
growth
accounts
are
maintained.
Amount
of
the
loss
is
derived
first
by
dividing
the
cost
or
other
amount
allocated
in
the
accounts
by
the
total
number
of
acres
in
plantation
or
young
growth.
This
value
per
acre,
multiplied
by
the
number
of
acres
destroyed,
gives
the
allowable
basis
which
may
be
claimed
as
a
casualty
loss
deduction.
Example:
A
taxpayer
owns
a
25-­‐acre
loblolly
pine
plantation
that
he/she
2
2
reforested
three
years
ago
at
a
cost
of
$2,500.
In
the
current
tax
year,
a
tornado
destroyed
10
acres
of
the
plantation.
The
loss
would
be
calculated
as
Cost
basis
per
acre:
$2500
divided
by
25
acres
=
$100/acre
Allowable
loss:
$100/acre
x
10
acres
destroyed
=
$1000
Casualty
Loss
in
Merchantable
Stands
The
amount
of
the
adjusted
basis
less
insurance
recovery
is
the
maximum
casualty
loss
which
can
be
claimed
if
a
stand
is
totally
destroyed
with
no
opportunity
to
salvage.
Timber
damaged
but
not
rendered
unmerchantable
can
often
be
salvaged.
First,
determine
the
depletion
unit
by
dividing
the
adjusted
basis
by
the
total
number
of
merchantable
units
of
timber.
The
depletion
unit
multiplied
by
the
number
of
units
destroyed
or
damaged
gives
the
allowable
basis
that
may
be
claimed
as
a
casualty
loss
deduction.
Example:
A
taxpayer
sustained
the
complete
loss
of
5
acres
of
timber
in
a
50
acre
stand.
The
stand
originally
contained
2,000,000
board
feet
of
merchantable
timber
with
20,000
board
feet
destroyed.
The
adjusted
basis
in
the
timber
was
$3,000
with
a
depletion
unit
of
$15/mbf
($3,000
divided
by
2,000,000
board
feet).
Since
no
salvage
was
possible
and
the
timber
was
not
insured,
the
allowable
casualty
loss
was
$300
(20,000
board
feet
x
$15).
Salvage
Sale
In
the
case
of
a
salvage
sale,
gain
or
loss
from
the
casualty
would
be
figured
much
in
the
same
way
as
for
any
timber
sale.
Example:
Wind
damaged
10
acres
of
pine
sawtimber
that
the
taxpayer
salvaged
for
$8,000.
The
adjusted
basis
in
the
timber
was
$500.
A
consulting
forester
charged
$800
to
administer
the
sale.
Gain
or
loss
is
computed
as
follows.
$8,000
Salvage
sale
receipts
−$800
Sale
cost
−$500
Adjusted
basis
$6,700
The
taxpayer
has
a
gain
Tax
Deferral
on
Gain
If
a
casualty
results
in
a
net
gain,
income
taxes
levied
on
that
gain
may
be
deferred
if
the
gain
is
reinvested
in
certain
'like"
properties
(Revenue
Ruling
80-­‐175).
Like
properties
include
other
standing
timber,
replacement
timber
sites,
seeds
or
seedlings,
and
planting
costs
on
currently
owned
or
replacement
timber
sites.
The
ruling
specifically
refers
to
high
winds,
earthquakes
or
volcanic
eruptions
but
logically
includes
other
types
of
casualties.
For
more
information,
contact
Extension
Forestry,
919.515.5638.
www.ces.ncsu.edu/forestry/programs/disaster.php
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Published by North Carolina Cooperative Extension
Distributed in furtherance of the acts of Congress of May 8 and June 30, 1914. North Carolina State University and North Carolina A&T State University commit themselves to positive
action to secure equal opportunity regardless of race, color, creed, national origin, religion, sex, age, veteran status or disability. In addition, the two Universities welcome all persons
without regard to sexual orientation. North Carolina State University, North Carolina A&T State University, U.S. Department of Agriculture, and local governments cooperating.
Distributed in furtherance of the acts of Congress of May 8 and June 30, 1914. North Carolina State University and North Carolina A&T State University commit themselves
to positive action to secure equal opportunity regardless of race, color, creed, national origin, religion, sex, age, veteran status or disability. In addition, the two Universities
welcome all persons without regard to sexual orientation. North Carolina State University, North Carolina A&T State University, U.S. Department of Agriculture, and local
governments cooperating.
copies of this public document were printed at a cost of or per copy.
Revised by
Robert E. Bardon, PhD
Extension Forestry Specialist
Originally prepared by Rick Hamilton, Extension Forestry Specialist
D03/2011