ecause North Carolina’s private landowners own close to 90 percent of the state’s 18 million acres of forestland, they play a critical role in assuring that our forests are healthy and productive. The decisions landowners make on their land have a long-term impact on wildlife habitat, clean air, clean water, wood supply and outdoor recreational opportunities.
So it’s important that they have the information they need to make knowledgeable forest management decisions that assure that North Carolina continues to enjoy the many benefits that forests provide.
A copy of the NCFA's Landowner Guide can be requested by calling the NCFA office at (800) 231-7723 or by clicking here.
Landowners interested in learning more about potential timber buyers in their area can research a comprehensive list provided by the North Carolina Forest Service... Click here to access that site.
Landowners who want to learn more about insurance for their timber can...check out this brochure.
Tax tips and estate planning documents for landowners can be found on the Pubs & Videos section...Click here to reach that section.
Financial assistance for reforestation is available at both state and federal levels.
State cost-share programs such as the Forest Development Program and the Southern Pine Beetle Prevention Program are available through the N.C. Division of Forest Resources.
Landowners may receive up to 40 percent of the cost of site preparation, planting or timber stand improvement through the Forest Development Fund. Funding for this program is provided by the state and the forest products industry in North Carolina.
At the federal level, cost-share funds may be available under the 2009 Farm Bill. The Farm Services Agency (FSA) and the Natural Resources Conservation Service (NRCS), encourage landowners who might be interested in various cost-share avaiable in the Farm Bill to plan ahead before signing up for a specific program. Click here for a list of programs that are offered annually.
Below are some key points and recommendations regarding timber taxation. This is general information only and should not be considered an official interpretation of federal and N.C. income tax laws. Tax laws are subject to interpretation and frequent change. Please check with your tax advisor on the applicability of current tax law to your particular situation and consult with your forester and accountant to determine what should be done to best protect your assets.
In October of 2004, the President signed HR 4520, the American Jobs Creation Act of 2004. This bill grew out of the need for Congress to respond to a World Trade Organization ruling that a $5 billion annual subsidy for U.S. exporters was illegal. As usual, this bill became a vehicle to do other things.
Included in it were two major changes in federal tax policy that affect private landowners and forestry.
The legislation contained language that amends the Internal Revenue Code (IRC) Section 631(b) to eliminate the requirement for timber sale contracts to contain a "retained economic interest" provision, which means that non-industrial private forest landowners are no longer forced to sell under pay-as-cut contracts and are able to use "lump sum" sale contracts with no concern over the loss of capital gains treatment.
Other timber-tax provisions added to the bill allow expensing of up to $10,000 for reforestation costs in the year of occurrence with an accelerated amortization rate of 60 months for the remaining costs (a change from the current $10,000 tax credit), allow voluntary election of IRC Section 631(a) by timber industry to help with how they calculate their capital gains on timber and establishes a modified safe harbor rule for timber Real Estate Investment Trusts.
The changes to the reforestation tax provisions were significant. At one time, a landowner could expense only 10% of $10,000 invested in reforestation in the year it was incurred. The remaining amount could be amortized over 72 months. A landowner can now expense $10,000 in the year it’s incurred and then expense the remaining amount over five years (60 months). These changes went into effect January 1, 2005.
When selling timber, be certain your interests are protected. Professional assistance is well worth the cost. Like most landowners, you probably sell timber infrequently and should not rely on personal judgment. You should confer with both a forester and an attorney experienced in timber sales.
Timber is generally sold either on a lump-sum basis or under a pay-as-cut agreement. Tax considerations, timber quality and quantity, and other factors should influence your decision on how the timber is sold. In a lump sum sale, the landowner receives a set price (lump sum) for the stand of timber.
Under a pay-as-cut agreement, the landowner is paid as the timber is cut and for only that timber that is harvested.
If you make infrequent sales and have good quality timber, it is often in your best interest to sell by advertising the sale to potential buyers, receiving sealed bids and selling on a lump-sum basis. You should then execute a timber sale contract. While no two contracts are exactly alike, all should include the following basic provisions:
As you would for any other investment, you need to protect your forest from the threat of wildfire, insect attack and disease. While these and other things will always pose some threat, there are things you can do to minimize the risk and reduce potential damage. Here are a few things: