Taxes Grow Without Rain
/The title of this blog post is attributed to a Jewish proverb, though I wish I had thought it up. We have had a wet start to January 2015 -- plenty of rain to make things grow. One thing I think we can all agree on is that we do not want to pay more taxes than we should. The beginning of the year is a great time to reflect on the past year, while things are still fresh in your mind. Did you save all the money you could? What should you have done differently? It is also a great time to begin to plan for the present year.
“Proper accounting and planning can save a landowner thousands of dollars in taxes.”
Photo by cucubau/iStock / Getty Images
Because our Congress continues to change certain federal tax provisions that could have a major implication on your taxes, it is important to stay as up-to-date as possible on tax laws.
Did you know that for property tax purposes, land used to grow timber is considered "agriculture use" and if there is not a business on the tract, it should be taxed on the basis for purposes of agricultural use. In Horry County, South Carolina, this means that any qualifying property will be taxed at a rate of 4% instead of 6%. Check that tax notice to make sure you are getting taxed on all tracts of your property at the correct rate! If a property sells, when the name on the tax notice changes, it automatically changes to the higher tax rate, so you need to APPLY for the lower rate. Be aware: the assessor will use several factors to determine if your property tract is, in fact, "agriculture real property." Here are some of the things your property could be checked for when making the determination:
- Is it a primary residence?
- Are there care / use practices like harvesting and cultivating that can be recognized?
- Does the land appear to be used as a hunting or fishing club?
- What was the past usage of the land?
- Is the tract vacant?
Here is a link to the Horry County Tax Assessor's APPLICATION FOR AGRICULTURAL REAL PROPERTY TO BE VALUED BASED ON USE. Click to be directed to the form and instructions, if you have real property you would like to apply for a rate change in Horry County, SC.
“Tax laws on timber transactions are very specialized knowledge that are not commonly known.”
Timber owners have the obvious responsibilities of owning and managing, incurring ongoing costs, and tending their timber as a steward of the forest. What sneaks up on some timber owners is complying with tax law. The importance of meeting with your tax advisor or accountant cannot be stressed enough. When it is all said and done, the landowner himself (herself) is the only one responsible for protecting his asset(s). A written "forest management plan" that outlines a landowner's profit motive is a good idea; this can be used as documentation of one of the 3 major types of timber / property ownership, listed below:
- Investment
- Business-use
- Personal-use
The first step for a landowner is to establish a timber basis for his / her property.
- If the property was purchased, basis is the amount you paid for it when you acquired the property
- If you inherited the property, basis is fair market value as of the giver's date of death
- If the property was gifted to you, basis is the lower amount between the fair market value or the donor's basis
A professional forester could provide the landowner with a fair market estimate for the value of the timber on the property. It may be a good idea to get more than one professional estimate and make an informed decision of the timber basis of your property.
We will attempt to update this blog weekly in 2015 as to provide you with continued information. For more indepth information about forest taxation, stay tuned to this blog for more to come.
*Disclaimer: Johnson Land & Timber, LLC. is not versed in the tax code enough to provide professional tax advice. Like you, we read the latest updates and consult with our accountant before making important tax decisions.