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First Year - Buy 1,000 acres of land for $190,000 including purchasing
costs
Assign basis land 1,000 acres $130,000
Assign basis timber 2,000 mbf 60,000
_________
Total $190,000
Second Year - Sell timber 1,500 mbf $ 75,000
Less cost basis 4,500
_________
(If held over 12 months) Captil Gains $ 30,000
1/2 Capital Gain or taxable $ 15,000
Plus FIP cost-share payment 1,200
_________
Gross Income $ 16,200
Less Deductions:
Depriation on $20,000 dozier purchased $ 2,000
(10 year-life)
Interest paid on money owed (31,579 x 9.5%) 3,000
Labor hired for timber stand improvement 1,600
Property taxes ($0.50 per $100 assessment) 950
_________
Total Deductions $ 7,550
Taxable Income $16,200 - $7,550 = $ 8,650
at 25% tax rate, tax = $ 2,162
less 10% investment credit on dozier 2,000
_________
Taxes Due $ 162
Tenth Year - Sell land and timber $200,000
Less basis land 130,000
Less adjusted basis timber 150,000
Less selling fees 12,000
_________
Gross Income $ 50,000
At 30% tax rate, tax due is $ 7,155
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Last revised September 3, 1995.