University of New Hampshire Cooperative Extension, in conjunction with faculty from Oregon State University and the University of New Hampshire released a tool to help forest landowners understand the financial implications of establishing a timber basis and depleting timber.
“We all know the tax code is complex. This decision tool, a calculator, provides guidance for one of the most accessible and important deductions for forest landowners – the depletion deduction,” said UNH Extension Professor and Specialist Karen Bennett.
Establishing a timber basis and depleting timber reduces the taxable gain for a forest landowner when generating revenue from a timber sale. However, there is often a cost to establishing a timber basis. The calculator helps forest landowners, typically through the assistance of a private consulting forester, understand whether there is a financial benefit to incurring costs necessary to establish a timber basis.
Karla Allen, a private forester with Garland Lumber of North Conway, and a focus group member during the tool’s development, notes, “I have a couple of clients utilizing the calculator with their accountant and it has been very beneficial. In addition, it has greatly helped me walk through the decision process of whether or not a client should purchase a particular piece of land.” Knowledgeable foresters providing good advice to their clients can identify opportunities where forestry services associated with establishing a timber basis are offset by tax savings. This generates business for foresters while providing financial savings to clients—a “win-win” for everyone involved.
The calculator fills a niche for accountants and tax preparers trying to provide their clients with the best and most accurate timber tax advice. Mary Welles, a Farm Accounting Officer with Farm Credit East, is one of the early adopters of the calculator. “We work hard to provide the best service that we can to our clients. The decision tool fills a fundamental need in our work. Without utilizing the timber depletion deduction, taxpayers could overstate their gain on timber sales. The decision tool and the information derived from using the tool provides taxpayers with valuable documentation needed to support the deduction. Our clients are saving significant tax dollars.”