In this series of videos, Grant Massie's resident forest experts share information about timber and how to maximize timber as an investment.

TRANSCRIPT OF PART 7 OF 10:

Ned : Bill, are there tax advantages to timber as an asset relative to sale?

Bill: Yes, you can, unlike most other assets, it's part of the property and if you sell the timber off of a piece of land you can take capital gains on that as opposed to an ordinary income. It does reduce the basis of the property so you have to take that into account because you still want to have some basis in the land which you can reduce.

The basis is reduced but then you can take capital gains on the difference or the value of the timber when you sell it. You have to own it at least a year before you can take capital gains on it. Then you can expense replanting, also the management trips to the property, those types of things are all tax advantages that you could use on a timberland stand.

Ned : You would want to consult your tax advisor before you did anything.

Bill: Exactly. You definitely need a CPA to advise you on that as to what expenses are allowable and the best way to approach that from a long term investment standpoint.

Ned : Thank you. If you decide to sell, there are different ways of selling as well. I mean, there's lump sum versus pay as they cut or whatever. Can you explain that?

Bill: Yes. The most popular way is a lump sum sale which the timber is put up for bid. You receive bids from timber operations, loggers. That usually will bring the best price.

Now, there are other areas that that is not the best way to do it particularly when you're doing a thinning or a select cut. You're not sure exactly what is coming out so that is usually done on a per unit basis, either per thousand board feet, per cord of pulpwood, or per ton which is the more recent way of doing it because it's per ton of fiber basically. That is the way it is measured in a lot of cases.

Ned : If it's going to be a select cut, you would want to be--get a forester to particularly be careful with that correct and mark the trees that are to be taken and then monitor to make sure that the trees that aren't supposed to be taken are left. That's why it would be done on a per ton basis. It would be better.

Bill: Yes, it's very important to have somebody monitor it because those areas that can create problems in what they take off and what you get paid for.

END OF PART 7

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