The Benefits of Capital Gains

As a woodland owner, you stand to benefit from the special rules that apply to capital gains income. Your land and its standing timber are both considered property that, if sold, creates capital gains income—and is eligible for special tax treatment that can save you money.

To qualify for the benefits that come with capital gains, you must meet the holding period requirement: 

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Credit: Shutterstock

• If you purchased your property, you must have held it for at least a year.
• If you received your property as a gift, you and the gift-giver (the previous property holder) together must have held the property for at least a year – your holding times are combined.
• If you inherited your property, there is no holding period requirement.

If you meet the holding requirement for your specific situation and you’re not organized as a corporation for tax purposes, your capital gains income can receive a preferential tax rate. You get that income when you sell your property, or when you sell timber from your property.

If you sell your property, your capital gains income from the sale is:

Your profit - your basis  = taxable gain

So if, for example, you sold your property for $90,000 and your basis is $45,000, your total taxable capital gain would be the $45,000 difference between these numbers.

That gain would then be multiplied by the appropriate tax rate. Say your ordinary income puts you in the 35 percent tax bracket—you would then qualify for a 15 percent capital gain rate.

$45,000 x 0.15 = $6,750 owed in taxes

Your land can bring you capital gains even if you don’t sell it, however—if you sell timber. In that case, there are some special considerations and tax code requirements to keep in mind.