Understanding Your Basis

What is basis?

Many landowners have never heard of “basis,” but knowing what it is and how to use it can save you money at tax time.

Your basis is basically how much money you’ve put into your property. It’s a measure of your investment in a capital asset, and the tax code allows you to reduce your taxable gain (for example, your proceeds from a timber harvest) by that amount. As a result, you may owe less in taxes.

When it comes to basis, the specifics matter. How you acquired your property—whether you bought it directly, received it as a gift, inherited it or obtained it through an exchange—determines how you calculate your basis. The kinds of trees you have and how they were established on your land can affect how you break down or allocate your basis between your land and your trees. And what happens to your property—if, for example, you make improvements that add value to the property in a lasting way—can change or adjust your basis over time.

It may sound complicated, especially if you’re not familiar with basis and not sure where to begin. We’ll walk you through the basis basics. 

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