Land/Timber Sale Question

Wasn’t sure what forum to post this under but with all the avid outdoors people out there I assume someone will have some insight.

My brother and I have 300 acres in Wisconsin that we use for hunting purposes only. We recently decided that we would like to have part of it logged off. After doing some research into this I found that we would have to pay capital gains tax on the sale of this timber which totally caught me by surprise. Never even crossed my mind that I would have to pay tax on this sale. So after doing some more research I found that if we were to sell this property we would have to also Capital Gains on it. Now why is that because when I sold my last house with 50 acres I did not have to pay any capital gains on it? What is the difference between land with a house and without?

I should point out that the property is owned personally by my brother and I and is not used as an investment or business. We have owned it for 15 years.

Thoughts on the capital gains part of the logging? How do you calculate. We are a couple working stiffs we don’t have accountants or anything like that.

Thanks,

Hunt4x

A house is your primary residence and it is exempt* from capital gains tax*. As with anything related to taxes, the * indicates lots of terms and conditions apply, but that a very simplified version of the big picture.

Your recreational land has no such exemption and any income derived from it (logging) is, errrm, income. And therefore, like any other income, is taxable.

There are, of course, ways to minimize this tax, but here you get into a situation of how much effort do you want to go through…

Just as a side note, what kind of timber do you have? Pulp prices are absolutely miserable right now and I won’t bother selling a single tree right now. Hardwood prices I don’t know about, but right now softwoods cut for pulp are seeing very low prices and personally I would consider my situation seriously before selling off timber at these prices.

Grouse

the property is owned personally by my brother and I and is not used as an investment or business. We have owned it for 15 years.

Welcome to forestry work. You invested in the land and let your tree crop develop for 15 years. Now you want to harvest it and sell for a profit? Business transaction.

Best thing you can do is talk to a couple of accountants that deal in agriculture/forestry. A good accountant can tell you the best tax planning for what you want to do. My farm has been agriculture for 20+ years, so our experience wouldn’t do you any good….other than welcoming you to the tax club

My cousins and I own property in Mn. There is interest by the State in enrolling a portion of it into a conservation easement. 40ac of the property includes parts of a 20ac lake & river in the Kettle River watershed. The desire is to protect land for wild rice. It pays a set amount per property tax assessment (up to $16K for the parcel). My understanding is this payout is also subject to individual tax and it may not reduce the property tax assessment. It would almost certainly reduce the fair market value with the easement attached.

I guess it is one of those things that we never thought of when buying the land. We never had any intention of selling off any timber. The only reason for having it logged is to create some much needed wildlife habitat that has been lost to the maturing of the forest. It is just one of those things that I don’t think most people think of when buying land for hunting or recreation.

Thanks for the comments.

Hunt4dx

1031 Like kind exchange could help when and if you sell the property. If your timber is still standing that will increase the value of your property at the time of sale. 1031 exchange is a way to push taxes out to the future while building wealth. The taxes are only charged for the last transaction utilizing the 1031. At least that is the way I understand it. This would not help if you sell the timber without the land.