US Forestry Taxation
Although forestry is not exempt from tax in the United States, the effective level is not high and recognises the long term nature of the business.

Calculation of Taxable Income
The authority for deducting management and operating expenses associated with an "investment" is section 212 of the Internal Revenue Code.

Establishing The 'Basis' Of Forestry Assets
For purchased assets, the basis is acquisition or establishment cost.

NB Information given here about the economics and taxation of forestry investments is strictly for general guidance and does not constitute investment or professional advice. Prospective or existing investors are strongly advised to seek professional advice on all aspects of investment in forestry and on its taxation, which is complex.

Casualty Losses

The tax treatment of losses to forestry assets resulting from Acts of God such as hurricanes and fire is generally considered one of the less satisfactory aspects of US forestry taxation. No special allowance is made for the fact that timber is an uninsurable appreciating asset with a very low basis to most owners. States which suffer major catastrophes often ask Congress to allow casualty loss deductions based on the fair market value of the timber destroyed; but Congress has not acted.

A casualty loss is defined as an actual loss of tangible or measurable property which is "evidenced" by a closed and completed transaction, fixed by identifiable events," and actually sustained during the taxable year. For a casualty loss to occur the event causing the casualty must be a natural or other external force acting in a sudden, unexpected, or unusual manner. This means that losses due to tornadoes, hurricanes, wild fires, etc. are deductible, but losses due to disease or insect infestations generally are not (but would still count against the adjusted basis via the depletion unit mechanism).

The amount of the deductible loss is the lesser of:

• The decrease in the fair market value of a "single identifiable property (SIP)," or
• The adjusted basis of the "single identifiable property,"

less any insurance proceeds, salvage value or other compensation received.

A "single identifiable property" (SIP) means either the individual units of timber (cords, board feet, etc.), or the entire block of timber affected by the casualty event. Block refers to all the timber in a given timber account. The rules permit damaged timber to be included along with destroyed timber.

SIPs ought to be clearly identified in forestry accounts. The establishment of SIPs after the event to maximise deductible losses will probably not be allowed by the IRS.

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US Forestry Taxation
Although forestry is not exempt from tax in the United States, the effective level is not high and recognises the long term nature of the business.

Calculation of Taxable Income
The authority for deducting management and operating expenses associated with an "investment" is section 212 of the Internal Revenue Code.

Establishing The 'Basis' Of Forestry Assets
For purchased assets, the basis is acquisition or establishment cost.