Form 1099-S may be issued when you receive proceeds from the sale of timber. How you report the income depends on the type of timber transaction involved.
Generally, timber sale income is reported as either:
- A capital gain (Schedule D), or
- Ordinary income
The correct treatment depends on how the income was earned.
Reporting Timber Sales as Capital Gains (Schedule D)
You may qualify for capital gain treatment if:
- You cut timber and elect to treat the cutting as a sale, or
- You dispose of standing timber, commonly referred to as stumpage
When these rules apply, the income is generally reported as a capital gain on Schedule D.
To enter the transaction in the program:
- Federal
- Income (Select My Forms)
- Investments
- Stocks, Mutual Funds, Cryptocurrency, Collectibles, etc.
Enter the sale information and any applicable cost basis to calculate your gain or loss.
Reporting Timber Sales as Ordinary Income
Report the income as ordinary income if it comes from selling products produced by the timber rather than from the sale of standing timber itself.
Examples include:
- Lumber sales
- Log sales
- Sales of other timber products
- Sales of non-timber forest products, such as:
- Moss
- Ferns
- Medicinal plants
- Payments received for the use of the property, such as:
- Hunting leases
- Recreational use fees
- Other rental or service income generated by the land
To enter ordinary income in the program:
- Federal
- Income (Select My Forms)
- Less Common Income
- Other Income Not Reported Elsewhere
Determining Your Cost Basis
Your cost basis is generally the amount you paid to acquire the timber property, plus certain acquisition-related costs.
Basis is important because it is used to calculate:
- Gain or loss from a timber sale
- Depletion deductions
- Taxable income from cutting or selling timber
Your basis may also be needed if the timber is disposed of involuntarily due to:
- Casualty losses
- Theft
- Condemnation
Properly determining your basis helps ensure you report the correct gain or loss when selling timber or timber-related property.
For instructions on how to report your 1099-S, Sale of Timber, click here.