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Sean 1969
Level 2

Sale of Timber

I'm married and file a joint return.  My wife is a general partner in a tree farm for her family.  We normally receive a schedule K-1 every year for this activity, with a slight monetary loss.  This year, the family decided to log some parcels, and now we will be getting a large distribution for that.  The accountant told me that it will show up in my Schedule D as capital gains, and I will be liable for those taxes.  My question is, can/should I sell stock that is currently underwater to off-set those capital gains with losses from that stock?

 

Thanks for the help with this.

 

 

1 Best answer

Accepted Solutions
Hal_Al
Level 15

Sale of Timber

Yes, timber sales are treated as long term capital gains.  So, any capital losses, you have, short or long term, can offset some of the gain from the timber sale.  As the other reply said, whether you should sell, depends on your overall tax situation.  For many people, the long term capital gain tax rate is 0%. The long term capital gain tax rate is 0%, until your total taxable income* reaches the 22% tax rate ($81,050 for Married Filing Jointly). Even then, the remaining capital gains are taxed at 15% (until the next threshold is reached).

 

For most people, the cost basis, in the timber sold, is zero. So, the entire amount of the timber sale is (usually) your capital gain.  However, depending on the accounting used by the timber partnership, the timber may have a cost basis and your capital gain may be something less than the full sale amount of the timber.

 

References:

https://www.extension.purdue.edu/extmedia/FNR/FNR_FAQ_2.pdf

http://www.timbertax.org/developments/Federal%20Income%20Tax%20on%20Timber-%20A%20Quick%20Guide%20fo...

https://www.fs.fed.us/spf/coop/library/taxpubfaqs.pdf

 

*Taxable income is after adjustments and deductions, including your standard deduction.

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2 Replies
Mike9241
Level 15

Sale of Timber

a personal decision.  capital losses offset capital gains. how much you save depends on your personal tax situation. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hal_Al
Level 15

Sale of Timber

Yes, timber sales are treated as long term capital gains.  So, any capital losses, you have, short or long term, can offset some of the gain from the timber sale.  As the other reply said, whether you should sell, depends on your overall tax situation.  For many people, the long term capital gain tax rate is 0%. The long term capital gain tax rate is 0%, until your total taxable income* reaches the 22% tax rate ($81,050 for Married Filing Jointly). Even then, the remaining capital gains are taxed at 15% (until the next threshold is reached).

 

For most people, the cost basis, in the timber sold, is zero. So, the entire amount of the timber sale is (usually) your capital gain.  However, depending on the accounting used by the timber partnership, the timber may have a cost basis and your capital gain may be something less than the full sale amount of the timber.

 

References:

https://www.extension.purdue.edu/extmedia/FNR/FNR_FAQ_2.pdf

http://www.timbertax.org/developments/Federal%20Income%20Tax%20on%20Timber-%20A%20Quick%20Guide%20fo...

https://www.fs.fed.us/spf/coop/library/taxpubfaqs.pdf

 

*Taxable income is after adjustments and deductions, including your standard deduction.

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