Purchased new 49acre tract of land for a Farm Pine Plantation what can be deducted/depreciated?

[TreeFarmGuy]

Good morning

I have an existing farm (pine plantation of approximately 280 acres). Just purchased an additional 49 acre tract of contagious land in the 2022 tax year. Most likely I will never sell this land it will be passed on to the next generation through my will. The land has utility easements and timber on it, I plan to clear cut the timber in 2023 or 2024 tax year. I paid $110,000 for the land since I have no intention of ever selling the land can I assign the full $110,000 cost to the value of the timber and $0 cost to the value of the land?

Also should this information be captured under "Farm Assets", "nonresidential real estate" in Turbo Tax?

Thanks for the help!

[ThomasM125]

You couldn't add the cost of the land to the timber since you won't be selling the land when you harvest the timber. The timber would seem to be a farm asset since you intend to sell it.

[TreeFarmGuy]

So should I so I even put the purchase in 2022 tax return or wait until I sell the timber to report it?

Thanks, Will

[KrisD15 · Accepted solution]

No, the land purchase is immaterial since land does not depreciate. 

 Most likely, when you sell the timber, it will be a Capital Gain, so you might want to hold it for a year first. 

Land does not depreciate, but you might be able to claim "Depletion" against the income from the timber you sell. 

What you paid for the property and the depletion for the timber MAY be a factor if the land is later inherited and sold. 

The basis would be stepped-up unless it is sold later at a loss. 

Here is more information. 

[TreeFarmGuy]

Got it thanks

Couple of more questions and I'm done on this subject!

1: There were fees included with the purchase of this land tract:

        a: Items payable in connection with loan: Origination Fee, etc.

        b: Title change fees and title insurance

        c: Filing Taxes

      Can I deduct these expenses this year? 

2: If I sell the timber for $100,000 and I show the "Depletion" against the sale at $100,000 how does it matter         if it has been more or less than one year?

Thanks again

[Critter-3 · Accepted solution]

1: There were fees included with the purchase of this land tract:

        a: Items payable in connection with loan: Origination Fee, etc.

        b: Title change fees and title insurance

        c: Filing Taxes

      Can I deduct these expenses this year?   NO ....that is all added to the cost basis.

2: If I sell the timber for $100,000 and I show the "Depletion" against the sale at $100,000 how does it matter         if it has been more or less than one year?   You cannot just deplete the entire cost ... the IRS has rules.

• Where do I enter income from a timber sale?