When you are involved in Timber Sales you generally receive a 1099-S. Though this form is most often associated with the Sale of a Main Home, it is also used to report an ownership interest / contractual interest in a sale or exchange of standing timber for a lump-sum payment that is fixed and not contingent.
There are two ways to report the income received from a timber sale, depending on how the income is derived:
Capital Gains- Schedule D:
You may receive an income by cutting the timber and opting to treat that cutting as a sale, or by disposing of standing timber, which is known as stumpage. In this case the income is treated as a Capital Gain and is reported by the taxpayer on their Schedule D. You can access the Schedule D within our program by going to Federal Section > Income (Enter Myself) > Capital Gain and Losses.
If you receive income from the sale of lumber, logs or other products produced by the timber itself then you report that income as Ordinary Income. It is also considered Ordinary Income if you sell non-timber forest products such as moss, ferns or medicinal products. Additionally, you may have received income from rent for the use of the property, or from other services that the property produced. An example of this would be if the land is used for recreational activities, or payments are received from a hunting lease.
You can access the Ordinary Income section in our program by going to Federal Section > Income (Enter Myself) > Other Income > Other Income Not Reported Elsewhere.
Determining Your Cost Basis- general rules apply for determining the cost basis as calculated by the IRS. Your basis is usually what you paid for the property including any other expenditures incurred for acquisition. This basis is used to figure the depletion unit needed to determine your taxable gain or loss when you sell the timber on the stump, cut it, or dispose of it involuntarily. This involuntary disposition usually occurs by casualty, theft or condemnation. For information on how the IRS treats this click here