VARDAMAN VIRTUAL FORESTRY COMPANY

LIKE-KIND EXCHANGES TO REDUCE THE TAX BITE ON TIMBER-SALE PROCEEDS

Every year after the growing season ends and other income for the year can be predicted, many owners decide to sell timber that they have held for a decade or more.  Almost without exception, their cost bases are low, so sales result in large capital gains taxable at combined state and federal rates of about 25%.  Furthermore, their lands become cutovers, and restoring them to production of income requires capitalized investments of $200 or more per acre.  Finally, the amount formerly invested in timber must go partly for taxes forever and partly somewhere else for one or two years to allow the timber buyer to remove his trees and Pales weevils to attack the stumps and roots and move on before new seedlings are planted and destroyed by them.

All taxing authorities that we know about ease the pain a little by recognizing that no gain occurs when one owner exchanges his timber for that of another, a transaction commonly known as a like-kind exchange.  The idea of avoiding taxation in this way appeals to all landowners in such situations, but like-kind exchanges are almost impossible to arrange.  We’ve never been able to do so in 50 years.  The reason is that, except for the contracts described below, no one in SE U.S. publicly offers to swap timber for timber.

Therefore, an investor-landowner, trying to arrange a like-kind exchange, winds up in one-on-one negotiations with professionals, first of all, to fix the value of his timber.  The following bids we received on 11/21/00 on a clearcut sale of a 20-year-old pine plantation in southern Mississippi reveal the difference between what different buyers will pay for the same tract of timber: a. $123,538.00, b. $116,712.00, c. $105,468.00, d. $102,758.81, e. $91,313.00, f. $71,587.81, and g. $47,500.00.  These seven pros submitted their bids only because they were competing against other pros.  If a landowner can’t do as well by negotiating, he will give up his saving in taxes and maybe a lot more.

The only professional offering long-term timber contracts for sale and willing to swap long-term contracts for short-term contracts is Pine Plantation Management Company (PPMC).  Jim Vardaman is its Managing Partner, and its operations have been covered in detail on our Internet sites.  PPMC now offers for sale or exchange the following Pine Plantation Investment Contractsâ (PPIC’sâ):

                        *Thinned

                        **Thinned and fertilized

Maps, schedules of estimated cash flows and returns, and annual photos of each are displayed on www.se-timbersales.com.  If you are interested in anyone or all, just call us. .