Federal Tax

Timber Transactions (Portfolio 610)

  • The Portfolio, Timber Transactions, analyzes the special tax treatment of timber operations, including changes made by the American Jobs Creation Act of 2004.


Bloomberg Tax Portfolio, Timber Transactions, No. 610, analyzes the tax treatment of timber operations. Section 631(a) allows a taxpayer to elect to treat the cutting of certain timber as a sale or exchange, and §631(b), in conjunction with §1231(b)(2), contains special rules for determining the character of gain or loss when a taxpayer disposes of timber held for more than one year (whether through an outright disposition or a transaction in which the taxpayer retains an economic interest). Gains and losses under both §631(a) and §631(b) are treated as §1231 gains and losses.

For transactions occurring on or after January 1, 2005, any outright disposition of timber held for more than one year will qualify as a §631 transaction. For transactions involving appreciated timber held for more than one year that occur prior to January 1, 2005, the timber had to be either a capital asset or §1231 property in the hands of the taxpayer and be disposed of in an outright sale to receive capital gain treatment.

In addition to dispositions of timber, this Portfolio discusses (1) long-term timber leases, (2) timber depletion, (3) reforestation expenditures and tax incentives, (4) cost-sharing payments, (5) road construction costs, (6) timber cruise expenses, (7) the amount of deductible loss under §165, and (8) timber REITs.

This Portfolio may be cited as Edwards, 610 T.M., Timber Transactions.

Table of Contents

Bruce Edwards
Sorensen & Edwards, P.S.
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