Leffler Farm and LeFils Ranch, Volusia County  
This tour was organized by the Volusia County Extension Office and the Tree Farm program. It featured two adjacent landowners who received Florida Tree Farmer of the Year awards in the last ten years. The Leffler Farm features many types of resources, including timber, cattle, and fertile fields. Vince Leffler, manager of the 5,000 acre tract and Tree Farmer of the Year in 2000, takes pride in his land and his stewardship philosophy. His family's mission is to coexist in harmony with nature while realizing a maximum return on their investment. This is accomplished through regular annual harvests of timber, livestock management, and several provisions for wildlife, including food plots, openings, stream corridors, and wetlands. 

Pine plantations range from two years old (replanted in a corner of the property that was burned in the 1998 fires) to over 40 years old. Older pine stands have been thinned at least once as their target for timber production is large diameter sawtimber. Hardwoods scattered throughout the pine, or in small hardwood stands, provide additional food and cover resources for various wildlife species. Much of the property is part of a hunting lease. 

Along with timber and wildlife objectives, the Lefflers raise cattle, primarily in improved pastures spread across the property. Sandhill cranes were observed in one of those pastures during the tour. Although the Lefflers use both prescribed burning and mowing to reduce understory fuel loads, they have not been able to use these operations as often as they would like. During the tour they pointed out the limitations of relying on burning and mowing for vegetation control as a comparison with the adjacent LeFils ranch. 

The LeFils ranch received the 1991 Tree Farmer of the Year Award. Although wildlife are important on their property, their primary objectives are timber and cattle production. In fact, they generally allow the cattle to browse throughout their plantations from the time they are planted. Whereas cattle and new plantations can be a difficult combination, they have been successful with this practice for two major reasons: they only control vegetation along the planted rows (either by bedding or bedding/herbicide treatments), and they maintain cattle stocking (cows per acre) at low levels. Enough vegetation grows up between beds to provide forage and to keep cattle away from the planted trees on top of the beds. Cattle continue to graze through plantations as they grow older. Consequently, many of their pine stands have a much lower understory shrub and fuel accumulation than on adjacent properties. 

Carnes Lake House and Hunt Camp, Gadsden County  
Bob Carnes, Stewardship Landowner of the Year for northwest Florida in 1996, works hard to provide habitat for quail, turkey, deer, and hogs while maximizing timber growth on his 335-acre property in Gadsden County. His property also features two fish ponds which are used by a diverse array of birds and mammals. 
 
Most stops on the tour illustrated the effectiveness of wildlife openings. Approximately 5-10% of Bob's property is maintained as open habitat, portions of which have been planted with small grains and legumes to serve as supplemental food sources. Plum trees and other fruit and nut producers were maintained to provide additional habitat diversity. 

A loblolly pine stand, planted at 12 x 6 foot spacing, is simultaneously providing an exceptional timber resource and habitat for many species of wildlife. Permanent openings and perimeter and interior firebreaks have been established, and every third row has been mowed to promote early succession food for deer, rabbits, songbirds, and quail. Groups of existing mast-producing species such as oaks, persimmon, hawthorn, sparkleberry, holly and wild plum have been retained to maintain habitat diversity. 

The last stop on the tour featured an 80-acre upland hardwood stand. Pines were removed from the stand in 1992 but most snags were left standing for wildlife habitat. While not ideal for timber production, hardwood stands provide excellent habitat for deer, turkey and birds and add to the natural aesthetics of a property.  This year's exceptional fall colors provided an excellent example of their natural beauty and an incentive for retaining this type of woodlands. 

Your Basis and Tax Records 
Part of the price you receive from a timber sale is taxable income and part is your investment, or basis, in the timber sold. The total cost of purchased timberland, or the value of inherited land, should be divided into land, timber, or other capital accounts. In each account, the basis is adjusted up for new purchases or investments and down for sales or disposals. Keep good records, including a written management plan, map, and documents supporting all costs and income. The basis and timber depletion should be reported on IRS Form T (timber), Schedule B. 

Passive Loss Rules 
Under passive loss rules you can be classified in 1 of 3 categories: (1) investor, (2) passive participant in a trade or business, or (3) active participant (materially participating) in a trade or business. You are materially participating if your involvement is regular, continuous, and substantial. Generally, active participants get the best tax treatment of deductible expenses, but you must support this with thorough records. Keep records of all business transactions related to managing your timber stands and other business activities such as landowner meetings. Odometer readings to and from meetings, canceled checks for registration fees, and copies of meeting agendas are some examples of documentation of meeting attendance. 

If you are an active participant in a timber business you must dispose of your timber under the provisions of Section 631 to qualify for capital gains. This means that timber must be sold on a pay-as-cut or "cut and convert" basis rather than lump sum. If you have considerable passive income, such as Conservation Reserve Program annual payments, it may be to your advantage to be considered a passive participant. 
 
Reforestation Tax Credit and Amortization 
The reforestation tax credit and 7-year amortization is among the best tax advantages for forest landowners. If you reforested during 2000 you can claim a 10% investment tax credit for the first $10,000 spent for reforestation. You can also deduct (amortize) all of your 2000 reforestation costs (up to $10,000) minus half the tax credit taken, over the next 7 years (8 tax years). You can amortize reforestation expenses on Form 4562, but the election to amortize must be made on a timely tax return for the year in which the reforestation expenses were incurred. Passive owners may not be eligible for this credit and amortization. 

Caution: the credit and amortization are subject to recapture if you dispose of your trees within 5 years of planting for the credit; and within 10 years of planting for the amortization. 

Capital gains and Self-employment Taxes 
You could pay significantly more in taxes if you report timber sale income as ordinary income rather than as a capital gain. Also, capital gains are not subject to the self-employment tax, as is ordinary income. 

Conservation Reserve Program (CRP) 
If you planted trees during 2000 under CRP you must report your annual payment as ordinary income. All other CRP cost-share assistance must also be reported as ordinary income, but payments used to establish trees can be claimed as part of the reforestation expenses reported for the reforestation tax credit/7-year amortization. 

Casualty Losses 
A casualty loss must result from an event that is identifiable, damaging to the property, and sudden or unexpected or unusual in nature (e.g., wildfires and storms). Your claim for casualty losses cannot exceed the adjusted basis minus any insurance or other compensation. Note that the IRS has ruled that losses resulting from drought or beetles generally do not qualify for a casualty loss deduction because they are not sudden, but they may qualify for a business- or investment- loss deduction. 

Management Expenses 
Your annual expenses for the management of an existing timber stand can be itemized during the tax year they are incurred, although the amounts that can be deducted depend on your tax category (investor, active, passive). If it is not to your advantage to itemize deductions for 2000 you should capitalize these expenses. 

Proper tax planning is a tedious but important part of timberland management. We strongly recommend contacting a professional tax advisor to help you with this task if you are uncertain of the procedures. 

You can access Tax Tips for Forest Landowners for the 2000 Year and other publications online at the bottom of the Southern Region Forestry Extension page at www.soforext.net/. Also check out Purdue University's National Timber Tax Website for a comprehensive treatment of timber taxes. Finally, Agriculture Handbook 718, titled, Forest Landowners' Guide to the Federal Income Tax, is available on-line.

Timber Market Conditions 
This summary was derived from the annual TMS report. There is little good news to report. Pine pulpwood markets in the south vary across the region, with average prices down 24% from last year. Sawtimber is also in a slump. Many mills are "full" across the southeast, with average sawtimber stumpage prices down 11% from last year. Hardwood prices seem to be experiencing a modest improvement but vary widely across the region. 

The low timber prices in our region are a reflection of excess production in other regions, namely Canada and Europe, where softwood lumber production has reached record levels, exceeding domestic demand. To add to the surplus, U.S. imports from other countries jumped from next to nothing to 907 million board feet in 1999, and increased another 34% in the first half of 2000. The current Canadian quota on exports to the U.S. expires next April, which may mean more softwood lumber imports from our neighbor to the north if there are no further trade limits. 

A critical part the domestic market is housing. Residential construction accounts for 35% of U.S. lumber demand, which is expected to reach about 18 billion board feet in 2001. This estimate is lower than 2000 demand by about 5%. The hope is for consumer confidence to remain relatively strong during the current economic slowdown so that housing starts and remodeling can pick up as interest rates change. The key is for the lumber industry to avoid a drastic increase in production to meet the improved demand (if and when it comes to pass).