Mitigating the Tax Liabilities on Your Forested Property

Written by Jeff Osborne, Forest Stewardship Program Associate, Center for Private Forests at Penn State

University Park, PA – January 20, 2022 – W2s and 1099s are arriving, and April 18^th will be here soon. If you own forested property there are ways to reduce your tax liabilities related to your property, especially if you are actively managing your woods. The way you claim income from timber sales can be the largest tax liability reduction. Saving on taxes requires some base knowledge, accurate record keeping, and annual consultation with tax professionals. Let’s look at some of the ways you can save.

In Pennsylvania, through the “Clean and Green Law,” special property tax considerations are given to agricultural properties and many properties with greater than ten acres of forest. Not all counties participate in Clean and Green, however in counties that do not participate the assessed value should be lower than those established by Clean and Green. Once you establish your property in the program, through your county’s tax assessor’s office, you will enjoy property tax savings, but if you change the use of the land you will have to notify your county forthwith and you may be subject to penalties, which may include paying seven years of rollback taxes plus six percent interest. There are other stipulations which can be found on the PA Department of Agriculture website.

For federal income taxes, if you have produced income from selling standing timber, and consider your property an investment, claiming the proceeds as long-term capital gain income will likely reduce your liability to 15% versus a likely higher amount if claimed as regular income. You may also deduct the cost of timber sale preparation from the sale total for tax purposes. If you have recently purchased a forested property with some timber value, consider establishing a cost basis for the timber. Establishing this basis, if you sell timber in the future, will allow you to pay taxes on the growth in value of the timber since you came to own the property, rather than the full value since the trees were established. All is not lost if you did not establish a basis right after acquiring the property, it can be calculated based on sampling the past growth of the forest and the current value. For example, if you sell timber for $50,000 of which the basis is $20,000, and you pay $5,000 for timber sale costs, you may only be liable for $3,750 in federal income taxes. If you claim the 50,000 as regular income at the average 22% tax rate you would owe $11,000, or $7,250 more. Not knowing how to prepare taxes that include a timber sale could cost you thousands of dollars in unnecessary taxes. If this is news to you, and you have recently had a significant timber sale, you can amend taxes for up to three years from the original due date of the return. There are also other provisions including accounting for losses and for reforestation costs. If you are looking to purchase forest land in another state, there may be additional state and local taxes to be aware of. Timbertax.org provides annual tips for landowners and has informative recorded webinars.

Tax mitigation and sheltering your forested property from being sold to pay for medical bills or other liabilities for your beneficiaries is also possible in many ways. You can transfer the property, set it into a trust, or LLC well before your death, say at least five years, to avoid look back periods. Consider seeking advice from lawyers who specialize in estate planning and work with forestland or farmland owners to set your beneficiaries up for success. The Center for Private Forest at Penn State provides education resources for legacy planning.

The Pennsylvania Forest Stewardship Program provides publications on a variety of topics related to woodland management. For a list of publications, call 800-235-9473 (toll-free), send an email to PrivateForests@psu.edu, or write to Forest Stewardship Program, The Pennsylvania State University, 416 Forest Resources Building, University Park, PA 16802. The Pennsylvania DCNR Bureau of Forestry, USDA Forest Service, Penn State Extension, and the James C. Finley Center for Private Forests at Penn State, in Partnership through Penn State’s Department of Ecosystem Science and Management, sponsor the Forest Stewardship Program in Pennsylvania

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Upcoming Events

Groups are expanding their in-person educational programming. We are providing links to the organizations’ online event calendars and websites, if they have them, for the most up-to-date information available to landowners and interested members of the public.  

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NORTHEAST PA (Bradford, Carbon, Columbia, Lackawanna, Luzerne, Lycoming, Montour, Monroe, Northumberland, Pike, Sullivan, Susquehanna, Tioga, Wayne, and Wyoming Counties) 

Bradford Sullivan Forest Landowners Association

Birdhouse Building Workshop & Meeting

February 19, 1:00 PM – 3:00 PM

Tioga, 73 Redtail Ln, Tioga, PA 16946, USA

Join the Tioga County Woodland Owners group for our annual birdhouse building party! https://www.tcwoa.org/

SOUTHEAST PA (Adams, Berks, Bucks, Chester, Cumberland, Dauphin, Delaware, Franklin, Lancaster, Lebanon, Lehigh, Montgomery, Northampton, Philadelphia, Schuylkill, and York Counties) 

“Geography, Geology, or Grit”

February 7,  7:15 PM

South Hanover Township Municipal building, 161 Patriot Drive, Hershey PA.

Guest Speaker: Frank Grumbine works as the Central Pennsylvania Community Preservation Coordinator, Preservation Services, PHMC/PA State Historical Preservation Office. Frank’s family history goes back to the earlier days of Union Deposit. During his work, he especially enjoys preservation of historical features and considers himself an environmental historian.

Topic: Frank will give a whole new approach to why so many settlers called the Hanover Townships (South, East and West townships of Dauphin County) their new homeland. The title ”Geography, Geology, or Grit” will provide a closer look at nearby geographic features (Blue Mountain/Kittatinny Ridge & Swatara Creek) and how these features enticed our ancestors to seek out Dauphin County as their Pennsylvania home.

Special Joint Meeting: Invited to attend, along with the general public, will be members and officers of West Hanover and East Hanover (Dauphin County) historical societies along with South Hanover Township Historical members and interested residents from our three Hanover townships. We are also looking to see members from of the Manada Conservancy, the Swatara Watershed Association and the Dauphin County Woodland Owners in attendance. All attendees will hear details on how landscapes’ impacted cultural and behavior trends in our region’s history.

Dauphin County Woodland Owners Association: http://dcwoa.org/   

SOUTHWEST PA (Allegheny, Armstrong, Beaver, Bedford, Butler, Cambria, Fayette, Fulton, Greene, Indiana, Somerset, Washington, and Westmoreland Counties) 

Woodland Owners of the Southern Alleghenies Annual Conference -
Saturday, March 11, 2023 Bedford American Legion http://www.thewosa.org/

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Forest Landowners Conference

March 24^th-25^th

Penn Stater Hotel and Conference Center in State College, PA

A full two-day, in-person conference experience as we have in the past. We are looking forward to welcoming hundreds of forest landowners, the forestry professional community, and our partners back at the Penn Stater Hotel and Conference Center in State College, PA. As in past years, the highlights of the conference will include opportunities for woodland owners, natural resources professionals, and others to interact, learn from one another, and add new ideas and resources to their forest stewardship “toolbox.” With a broad range of presentation topics, the conference aims to meet the needs and interests of woodland owners of varying backgrounds, experiences, and interests. And there will be tours and workshops, exhibits, keynote speakers, and plenty of good food. Mark your calendars for March 24-25, 2023 and watch for more information in future issues of Forest Leaves. We look forward to seeing you there!

Registration link: https://extension.psu.edu/forest-landowners-conference?fbclid=IwAR1IBChvPRMr_jA1keg3sEZgf_-MoF3rExs3cYgfk-yKeHuhPYe2ClDHZNg

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PA FORESTS WEB SEMINAR CENTER  

Anyone can participate in these webinars. Visit the Penn State Extension website to register for upcoming webinars. Seminars are held the second Tuesday of every month. Participants need to have a high-speed internet connection and speakers to attend. 

Advice from the Woods: Ask Our Experts Webinar

Wed., Feb. 1, 2023

(12:00 PM - 1:00 PM ET)

The Advice from the Woods: Ask Our Experts event involves a panel of Forestry and Wildlife Extension Educators and Faculty tackling participant-submitted or commonly asked questions and scenarios as a team. https://extension.psu.edu/advice-from-the-woods-ask-our-experts