Timber Taxes and Forest Estate Considerations. Mark Megalos, NC State University, Forestry Extension

Transcription

1 Timber Taxes and Forest Estate Considerations Mark Megalos, NC State University, Forestry Extension

2 THIS TALK TIMBER TAX BASICS CAPITAL GAINS, BASIS, REFORESTATION FOREST ESTATE CONSIDERATIONS EXAMPLES RESOURCES SUMMARY

3 Important Timber Times 1. Selling Timber Cost of Sale - Deductible Timber Basis Deductible Preferential Tax Rate 2. Purchase/Inheritance Timber Basis 3. Replanting Reforestation Tax Deduction

4 Timber Sales Gross Income $50000 Costs of Sale (8500) Basis (21500) Net Taxable Income $20000

5 COSTs OF SALE Tree marking Scaling Cruising Temporary roads Consultant fees Legal fees Advertising fees Survey Etc.

6 Timber Sale (cont.) Net Taxable Income $20000 Long-Term Capital Gains (Timber Qualifies for LOWER TAX RATE)* *1 Year Holding Period

7 Timber Sale (cont.) WHERE TO REPORT IT Report on Schedule D (Investors) Report on Form 4797 (Business)

8 LTCG Rates (2014) Income* Ordinary Rate LTCG** $0-18,050 10% 0% $18,051-73,800 15% 0% $73, ,850 25% 15% $148, ,850 28% 15% $226, ,100 33% 15% +3.8 $405, ,600 35% 15% +3.8 $457, % 20% +3.8 *Married Filing Jointly 3.8 % NIIT Tax (high income folks)

9 BASIS COST of ACQUISITION FAIR MARKET VALUE ( INHERITANCE) GIFT BASIS of FORMER OWNER DOCUMENTED COSTS to GROW What is one USES the Reforestation Credit?

10 Timber Sales RECAP Gross Income $50000 Costs of Sale (8500) Basis (21500) Net Taxable Income $20000

11 ESTATE CONSIDERATIONS

12 What Will Happen With Your Forest Estate? Has your land appreciated significantly? Will it in the future? Does land have development potential? Is it Pressured by growth? Do Heirs Have Any Interest in It?

13 What Are Your Future Goals? Have you thought about a transition plan? Have you considered the fate of your estate? Stuck on Where to Start? Overwhelmed?

14 Let s Start Narrowing Your Goals! Do you need or want to cash in on your land value? Do you want to protect the land / timber? Do your children want to protect the land from subdivision and development? Would you like to give all or part of your Land / Timber $$ to charity?

15 New Guide ( Spring 15) Conservation Through Working Lands See me for a draft copy!

16 Potential Estate Option #1 WILL A last will and testament is the simplest and least expensive method of active estate planning. Avoids loss of income and tax benefits Peace of Mind Sound, Cool-headed, Deliberate

17 Potential Estate Option #2 Partnership - or LLC Mechanism to share ownership while keeping land intact. Liability differs by type. Undivided interest in assets Can Simplify Gifts (Shares vs Acres) Can be established Now (to test viability) or Later ( control while here)

18 Potential Estate Option #3 Sell or Gift to Heirs Immediate transfer options for TODAY. LAND or TIMBER or BOTH. Gifts Retain your Basis Sales- Establishes new FMV Basis Can SELL Timber NOW and share $$ as $14 K /year

19 Potential Estate Option #4 Conservation Easement Maintains ownership while restricting development, subdivision for term or forever. Tax Benefits Potential for Revenue Can Reduce Estate Valuation Provides for Certainty beyond your life.

20 Potential Estate Option #5 Sale to Public Entity Direct Sale or Bargain Sale to public entity. Immediate Revenue Potential Tax Avoidance- Bargain Solves Potential Estate Problems Provides Finality

21 Potential Estate Option # 6 Institutional Planned Giving: Multiple options exist to donate real estate while providing annuity returns for retirement. Gift annuity, deferred gift annuity Annuity trust, unitrust, Sale, or gift and sale.

22 Potential Estate Option # 7 Al a Carte Selection of Options 1-6 Remember Each Estate Plan in UNIQUE Matches Your Objectives Online Calculators abound to test the waters before you decide

23 Many Hands Make Light Work

24 Get Started Now! List All Assets: Accounts,Insurance Policies, Mutual Funds, Retirement Accounts, Business interests, Partnerships, Real estate (appraisals) Name/Address/Phone of attorneys, accountant, financial advisor, insurance agent, next-of-kin or preferred contact Separate list of preferences of final arrangements

25 GET YOUR FILES IN ORDER

26 Put A Team Together Now! Seek professional help! Attorney ( Estate Specialist) Banker / Trust officer (as needed) CPA / Tax Advisor / Estate Planner Insurance representative

27 Institutional Help is Available: Many Colleges, Churches, Universities and other Non-profits have Estate Planning if a portion or majority of your estate is left to them. A range of options are available depending upon your needs: Life Income Gifts, Charitable Remainder Trusts, Retained Life Estate, etc.

28 Remember: Estate Planning Isn t A D-I-Y project Estate Plans = Ongoing Process Choose an Administrator State Your Preferences

29 Remember: You won t take it with you!!! But, YOU can plan and ensure a smooth transition for family, friends and your causes NOW Your Gov t has a plan if you don t make one!

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32 Resources: Your land, Your legacy s/pdf-doc-ppt/ylyl_web.pdf TIES to the LAND Running Successful Farm-Family Meetings

33 THANK YOU!!!

34 QUESTIONS?: Mark Megalos Extension Associate Professor Ph.D. NCRF #728 ph; fax: