CAPITAL IDEAS -- LIVE!
MARCH 2014 News Conference for Forest Owners
Sponsored by the Alabama Forest Owners' Association, Inc.
This Conference was recorded on March 19,
Hayes D. Brown
starting time: (00:00)
Hayes D. Brown, attorney and forest owner, will moderate this news
conference. Hayes' email address is
Click Here to View & Hear Prior News Conferences.
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on this conference.
David P. Tenny
Time to Unite Around Timber in the Tax Code
CEO of the
National Alliance of
Forest Owners (NAFO), continues to focus our attention on national
issues of importance to owners of forestland. His blog of 3/7/14 begins:
Last week House Ways & Means Committee Chairman Rep. Dave Camp introduced
his long-awaited draft tax reform proposal. Even though most pundits agree
that tax reform is unlikely to move forward in this Congress, forest owners
would be wise to act now to prevent a potentially catastrophic change to
timber policy in the tax code in the future.
Regardless of its reception in Congress, the Camp proposal fundamentally
changes the tax policy playing field by proposing to repeal a long list of
so-called tax expenditures - those sections of the tax code that analysts
claim reduce federal tax revenue. This list becomes a menu for policy makers
looking for revenue to offset future changes to the tax code or for other
Of concern to forest owners and allies in the Camp proposal is the potential
elimination of the three existing "timber tax provisions" encompassing the
long-term capital gain treatment of the sale of timber, the ability to
annually deduct timber growing expenses and the treatment of reforestation
Dave Camp, Ways & Means Committee;
Ron Wyden, Comiittee on Finance)
The Federal tax code recognizes the unique characteristics of timber
investments by allowing taxpayers to:
- Deduct the costs of forest management,
including preventative measures (fire, pest and disease), thinning,
fertilization, interest, taxes, protection of wetlands and endangered
species, and forestry activities, as these costs are incurred. (IRC
- Receive capital gains treatment
(since 1944) for the harvest of timber or sales of standing trees.
This recognizes taxpayers’ large up-front investment and the long
holding periods before realizing any gains. (IRC Sections 1231(b)(2)
- Deduct up to $10,000 of reforestation
costs as they are incurred, with the remainder amortized over 7
years. (IRC Section 194)
The timber tax provisions help private forests owners make significant
contributions to the U.S. economy and provide numerous environmental and
- Private working forests and the goods
and services they produce contribute substantially to the economy with
2.4 million total industry-related jobs, payroll of more than $87
billion and $223 billion in timber and related wood products sales.
- The number of private working forest
acres has remained stable over the past 50 years while total timber
volume has increased over 60%, providing significant environmental value
by consuming carbon dioxide, curtailing erosion, creating wildlife
habitat, providing clean drinking water, and maintaining natural lands
for outdoor recreation.
CONTACT INFORMATION FOR
Phone: (202) 747-0739
Dr. Jordan Rappaport
Housing Starts to Begin Decline in Mid 20s
Jordan Rappaport is a
Senior Economist at the
Federal Reserve Bank of Kansas City.
He begins his report,
The Long-Term Outlook for U.S. Residential Construction, with
bleak news: "Although residential construction grew strongly in 2011 and
2012, it plateaued in early 2013, calling into question the strength of the
housing recovery. But an analysis of demographic trends suggests
construction growth will likely resume in the near term, especially in
multifamily housing. Over the longer term, however, slowing U.S. population
growth will exert significant downward pressure on housing demand. Even
under optimistic assumptions, overall residential construction is projected
to enter an extended decline by the early 2020s." Take a look at Chart 1
on the first page of the report -- Single family starts plummet from more
than 1.6 million houses in about 2005 down to less than 500,000 in 2008.
Then they begin a fairly rapid climb back up to about 1.3 million starts in
2021 - BUT then housing starts begin a long decline to about 800,000 starts
per year where the chart ends. Not good news.
Pine sawtimber demand and stumpage prices are largely
dependent on residential construction, especially single-family houses.
Rappaport's projections, combined with Jones' warnings (see below) that sawtimber quality will be far more
important in the future, should give the informed pine timber grower a
distinct advantage, if the information is applied now, when planting new
trees and thinning current pine stands.
Dr. P. David Jones
In the future, sawtimber quality will impact price
Department of Forest Products at Mississippi State University.
A couple of years ago, testing revealed that visually graded southern pine
dimension lumber was not as strong as tests made back in 1991, when visual
grading rules were last established. Southern pine lumber design values
would have to be changed and those changes might affect roof truss designs
and other areas where strength is an important factor. The differences were
significant and worried lots of people in the southern pine lumber industry.
New Southern Pine Design Values, 9/27/12, we read, "[The
Southern Pine Inspection Bureau] "did not specifically study why a
change occurred this time, but a change in the timber resource mix is
one of many variables that can affect the strength of structural lumber."
In his lecture,
Growing Trees, Making Products, and Maintaining Quality, at
Auburn University on February 26, 2014, Dr. Jones made it clear that "what
we do in the forest changes the products we produce." He implies that in a
future world where pine sawtimber demand is not as great as it was prior to
2008, nor as great as short-term forecasts predict, the QUALITY of the
wood we grow will become very important. The 40+ minute lecture,
accompanied by excellent graphics, is well worth your time if you plan to
grow southern pine sawtimber.
Dave wrote to AFOA, "A deep read that matches my
comments can be found in
and Properties of Juvenile Wood in Southern Pines."
We asked Dave for the take-home message to
- in the future, managing for
quality will be important
- management mistakes can be healed with time
Phone: (662) 325-8454
Lenny D. Farlee
Crop Tree Management
Lenny Farlee is
Extension Specialist at the
Purdue University Forestry and Natural Resources Department. In an
Management for Fine Hardwoods(1403a),
Walnut Council Bulletin,
12/13, Farlee introduced readers to the concept of Crop Tree
Crop tree management
(CTM) is a relatively simple and easy to use tree management system
well-suited to small woodland ownerships. CTM, also called crop tree
release, can be adapted to manage for several woodland ownership goals
including timber production, wildlife, aesthetics, biodiversity and
water quality protection.
The system is based on the principle of managing to promote the
health and vigor of those trees that best achieve your management goals.
This is normally done by deadening or felling trees competing with the
crowns of selected crop trees so that each crop tree is free to grow on
75 to 100% of the crown circumference (3 or 4 sides). This is often
referred to as a crown touching release. This method has been
demonstrated to increase the growth of released crop trees in comparison
to area-thinned or unthinned forest stands.
Phone: (765) 494-2153
Henry I. Barclay, III
Tax Changes in 2014 and Avoiding a Tax Trap
is a Certified Pubic Accountant and Managing Partner of
& Barclay LLP, a firm that "has been involved in timber related
services almost since its inception in 1912." Henry is active in the
Forest Landowners Tax Council
(Chairman of the Board), the
Forest History Society (Treasurer), and the
Alabama Forest Owners'
Association (Past President and Member of the Board), so he is a tax
expert who understands and is truly interested in forestry and forestland
owners. We last saw Henry when he was speaking at the Alabama Natural
Resources Council Symposium in Prattville.
Click here for his Symposium
slides. His notes (rewritten for this webcast) follow:
At that event, we discussed the
potentially significant effect of the the tax act which kicks into play
this year. For Forest Owners, some changes are:
- Rates are generally higher: gains
over $400K to $450K result in LTCG rates of 20% federal, an increase
of 33 1/3 % from the previous 15%.
- Investment income, over $200K is
assessed a Medicare surtax of 3.8%
- Investment income includes
passive income or activities such as timber farming for which the
taxpayer cannot substantiate the significant material participation
tests. Typical targets for this income treatment are limited
members/partners in LLCs and LLPs or Sub Chapter S corporations
involved in timber farming (these are ordinary estate planning
IRS is taking a close look at the
question of Hobby Losses under section 183 when it is looking at Timber
Farmers. It is important to maintain the attributes of business
activities when conducting business activities. Adequate and stated
business objectives, business plans, records, separate checking,
identification, professional consultation, advertising, attendance at
continuing education events, networking with other business owners are
all activities which on the whole give the appearance of the fact that
you are in a business.
Timber owners should always anticipate the tax cost of timber
Generally, timber owners should maintain a log of their activity, date,
time, task performed, on their property to substantiate their material
participation. Also, upgrade your management plan and keep it current.
Avoiding taxes is becoming a fulltime job!
Phone: (205) 439-6520
Arnold (Beau) Brodbeck
Mapping Trails, Roads, and Property Corners with Smartphone App
Beau Brodbeck is a
Wildlife, and Natural Resources Regional Extension Agent with the
Extension System. While talking with Beau at a forestry symposium a
few months ago, we thanked him for introducing AFOA to Chris Dillard and his
GPS 101 programs that have been so eagerly attended at our Annual Meetings
(the April 25 session is
already developing a stand-by list). We talked about Chris's plans to start
a new round of training sessions using smartphones as GPS and GIS platforms,
replacing the handheld GPS units and GIS software on laptop computers which
he currently uses in the training sessions. That's when Beau pulled out his
smartphone with several "tracks" of his morning exercise runs.
Could we create tracks of trails and
roads in the woods? Yes. Could we give them a name, such as "Cabin Road"
or "Canyon Trail"? Yes. Could we mark places like "Southwest Corner
Hargrove 40"? Yes. What's it called?
Since talking with Beau, we bought the $1.99
App and began testing it. There were a few problems learning to use the
menus, but with repeated use, we have created maps of woods roads and corner
posts. By clicking the "send email" icon in the App,
KMZ files were sent to our desktop computer and iPad, both of which
contain the free version of Google Earth (we could have sent the email to a
friend or family member, too). A click on the KMZ file attached to the email
opened Google Earth with track or waypoint clearly visible. We think you're
going to like MotionX-GPS.
Phone: (251) 937-7176
How-to videos from University of Kentucky
Billy Thomas is an
University of Kentucky. If you are reading these words, you have
probably done a Google search for a product you couldn't find at local
ivy lotion, for example). Have you searched YouTube for a how-to
how to play the harmonica? We use YouTube how-to videos all the time at
our house, so we were really happy when we learned that Jeff Stringer, Billy
Thomas and others at UK Extension had put together more than a dozen
how-to videos on a variety of forest management tasks. Today we asked
Billy to introduce us to the video collection.
A Sampling of the University of Kentucky
Forestry Video Titles:
Phone: (859) 257-9153
Dr. Peter J. Smallidge
Timber Growing Contest
Peter Smallidge is the
York State Extension Forester and
Director of the
University Arnot Teaching and Research Forest. During the past few
months, my wife (AFOA Office Manager, Eyvon Laechelt) has been talking about
setting up a sample plot in the forest to measure how fast our trees are
growing, so when we read about
Northeast Timber Growing Contest in the New York Forest Owner,
March/April 2013 and
January/February 2014, we thought, "Maybe we can do something like
"Following the contest guidelines
www.TimberContest.com, forest owners may team-up with forestry
professionals to take an active role in growing timber and wood volume.
Timber stand improvement, site enhancement, and the providing of water
and nutrients are some of the tools that might be used to increase
productivity and timber quality. Area and volume measurements are taken
at the beginning and at regular time intervals. Seedling counts are also
taken for those interested in advanced forest regeneration."
Julie and Dean Faklis (Team Springwater) "created [three plots in a
dense red pine plantation], marked the trees and made measurements. It
was fun to get out in the woods as a couple and shoot the breeze while
getting something done. Perhaps our trees will grow....or we'll find
some use for them to make room for new stock. With paint on her fingers,
a clipboard in her hand, and a smile on her face, Julie was overheard to
say, 'Dean, winning isn't everything, I'll still love you. But...I still
want to win!'"
Rules, Score Sheets, Articles and Webinars
about the contest and woodland management are all at
Conducting a Simple Timber Inventory by Henning and Mercker
Phone: (607) 592-3640
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