Ice Storm Damage
Recovering the Value of Storm Damaged Timber From Taxes
To be allowed as a casualty loss deduction on your Federal Income Tax Return,
a loss must be caused by natural or other external factors acting in a sudden,
unexpected and unusual manner.
The language in Section 165(c)(3) of the Internal Revenue Code indicates that
fires, storms and shipwrecks are casualty losses. The term has been limited by
the courts and IRS to these and similar occurrences such as windstorm, sleet and
Determining the Amount of Deductible Loss -- If your timber is
destroyed by fire, ice storm or other casualty, your deductible loss is the
allowable basis (value invested) in the timber destroyed minus any insurance or
other compensation received. Timber damaged, but not made unmerchantable, should
be salvaged if possible.
If a gain results from the salvage activity, there is no casualty loss with
respect to the salvaged timber. Determine your gain or loss from the salvage
cutting, sale or other disposal as you would for timber sales in general.
If you are not able to salvage the timber after making a bona fide attempt to
do so and claim a loss deduction, you should keep a record of your efforts to
show that the timber was not salvageable.
Determining Volume of Timber Destroyed -- To claim a loss deduction, the
single identifiable object damaged or destroyed must be identified. For timber,
this is expressed in terms of the specific units destroyed. The units of
measurement used should be those used to maintain your timber accounts, such as
board feet, cords, cubic feet or tons.
The number of units of timber destroyed must be established by fair and
reasonable measurement to justify a deduction. You may wish to employ a
consulting forester to cruise the
timber if the area is extensive and much work is involved. Your county
forester or other representative of the Arkansas Forestry Commission may be able
to furnish you with an estimate of the quantity destroyed.
Determining Basis of Timber Destroyed -- Determine the basis (value
invested) in timber destroyed as you would for a timber sale. First, determine
the depletion unit by dividing the adjusted basis for depletion as shown in your
timber account by the quantity of merchantable timber in the account.
Then, multiply the depletion unit by the number of units destroyed to find
the amount allowable as a loss. The volume used to calculate the depletion unit
for the loss should include adjustments for growth for the year of the casualty
but is not reduced by the volume of timber destroyed. If your timber has no
basis, you will not have a deductible loss.
Year of Deduction -- A loss arising from a casualty generally is
deducted in the year in which the casualty occurs. This is true even if you have
not yet settled a reimbursement claim or have not received an agreed upon
insurance settlement or other compensation.
If a claim for reimbursement has been made, and you think you will recover
all or part of the loss even though you have not yet received payment by the
time the tax return for the year of the casualty is due, reduce the reported
loss by the amount you expect to recover.
Landowners who have suffered significant timber losses should contact a
knowledgeable tax attorney familiar with timber tax especially tax losses from
storm damaged timber. General information regarding timber taxes can be found
Southern Regional Extension Forestry
Timber Tax Website.
Contact: Tamara Walkingstick (501) 671-2346.