Understanding casualty loss of timber
Abstract
"One of the most common questions regarding tax treatment of timber has to do with casualty losses. According to the Internal Revenue Service (IRS), a casualty is defined as the damage, destruction or loss of a property resulting from an identifiable event that is sudden, unexpected or unusual. From a timber investment standpoint, the most common causes of casualty losses are fires, wind storms, ice storms, vandalism, floods and earthquakes. It is important to understand that losses in timber due to progressive deterioration, such as fungus, diseases, insects, worms, or similar pestsi are typically not considered casualty losses, because they are not sudden, unexpected or unusual. The IRS allows timberland owners to take a deduction on their Federal income tax return for casualty losses. However, because most private timberland owners hold timber as a business or an investment, the amount of the deduction is the smaller of the adjusted basis of timber or the difference of the fair market value immediately before and a�er the casualty. There are two major tax concepts involved in determining a casualty loss deduction: "adjusted basis" and "fair market value." Following an explanation of these concepts, two case studies will illustrate their application in determining a casualty loss deduction for damaged timber."--First page.
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