Timber Tax
According to Bailey, et al., the six most important rules for timber investments are:

1. The treatment of timber sale income as long-term capital gain.
2. The correct allocation of basis (acquisition costs) between land, timber, and other land improvements on the property.
3. Cost depletion.
4. The deduction, for an active business or investment, of management expenses, property taxes, and other business-related costs.
5. The suspension (or capitalization), for a passive business, of management expenses, property taxes, and other business-related costs.
6. The reforestation amortization and investment tax credit.

Bailey, et al. further recommend that, "Forest landowners must either have a working knowledge of the tax provisions affecting timberland or seek the professional services of an accountant familiar with the tax provisions relating to forestry investments."

More information about timber tax can be found at http://forestry.about.com/education/forestry/msubtax.htm.

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