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CAPITAL IDEAS -- LIVE!

MARCH 2014 News Conference for Forest Owners
Sponsored by the Alabama Forest Owners' Association, Inc.
This Conference was recorded on March 19, 2014

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Conference.
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Hayes D. Brown   Alabama Forest Owners' Association

Hayes D. Brown

starting time: (00:00)
Hear Conference

Moderator

Hayes D. Brown, attorney and forest owner, will moderate this news conference. Hayes' email address is hbrown@hayesbrown.com.

Click Here to View & Hear Prior News Conferences.

Click here to comment on this conference.

 

David P. Tenny

(00:23)
Hear Conference

Comment

Time to Unite Around Timber in the Tax Code

Dave Tenny, CEO of the National Alliance of Forest Owners (NAFO), continues to focus our attention on national issues of importance to owners of forestland. His blog of 3/7/14 begins:

     Last week House Ways & Means Committee Chairman Rep. Dave Camp introduced his long-awaited draft tax reform proposal. Even though most pundits agree that tax reform is unlikely to move forward in this Congress, forest owners would be wise to act now to prevent a potentially catastrophic change to timber policy in the tax code in the future.
     Regardless of its reception in Congress, the Camp proposal fundamentally changes the tax policy playing field by proposing to repeal a long list of so-called tax expenditures - those sections of the tax code that analysts claim reduce federal tax revenue. This list becomes a menu for policy makers looking for revenue to offset future changes to the tax code or for other purposes.
     Of concern to forest owners and allies in the Camp proposal is the potential elimination of the three existing "timber tax provisions" encompassing the long-term capital gain treatment of the sale of timber, the ability to annually deduct timber growing expenses and the treatment of reforestation expenses. ...more      (Rep. Dave Camp, Ways & Means Committee; Senator Ron Wyden, Comiittee on Finance)

The Federal tax code recognizes the unique characteristics of timber investments by allowing taxpayers to:

  • Deduct the costs of forest management, including preventative measures (fire, pest and disease), thinning, fertilization, interest, taxes, protection of wetlands and endangered species, and forestry activities, as these costs are incurred. (IRC Section 263A(c)(5))
  • Receive capital gains treatment (since 1944) for the harvest of timber or sales of standing trees. This recognizes taxpayers’ large up-front investment and the long holding periods before realizing any gains. (IRC Sections 1231(b)(2) and 631(a)&(b))
  • Deduct up to $10,000 of reforestation costs as they are incurred, with the remainder amortized over 7 years. (IRC Section 194)

The timber tax provisions help private forests owners make significant contributions to the U.S. economy and provide numerous environmental and social benefits.

  • Private working forests and the goods and services they produce contribute substantially to the economy with 2.4 million total industry-related jobs, payroll of more than $87 billion and $223 billion in timber and related wood products sales.
  • The number of private working forest acres has remained stable over the past 50 years while total timber volume has increased over 60%, providing significant environmental value by consuming carbon dioxide, curtailing erosion, creating wildlife habitat, providing clean drinking water, and maintaining natural lands for outdoor recreation.

CONTACT INFORMATION FOR

Phone: (202) 747-0739
Email: dtenny@nafoalliance.org

.

Dr. Jordan Rappaport

(05:03)
Hear Conference

Comment

Housing Starts to Begin Decline in Mid 20s

Jordan Rappaport is a Senior Economist at the Federal Reserve Bank of Kansas City. He begins his report, The Long-Term Outlook for U.S. Residential Construction, with bleak news: "Although residential construction grew strongly in 2011 and 2012, it plateaued in early 2013, calling into question the strength of the housing recovery. But an analysis of demographic trends suggests construction growth will likely resume in the near term, especially in multifamily housing. Over the longer term, however, slowing U.S. population growth will exert significant downward pressure on housing demand. Even under optimistic assumptions, overall residential construction is projected to enter an extended decline by the early 2020s." Take a look at Chart 1 on the first page of the report -- Single family starts plummet from more than 1.6 million houses in about 2005 down to less than 500,000 in 2008. Then they begin a fairly rapid climb back up to about 1.3 million starts in 2021 - BUT then housing starts begin a long decline to about 800,000 starts per year where the chart ends. Not good news.
     Pine sawtimber demand and stumpage prices are largely dependent on residential construction, especially single-family houses. Rappaport's projections, combined with Jones' warnings (see below) that sawtimber quality will be far more important in the future, should give the informed pine timber grower a distinct advantage, if the information is applied now, when planting new trees and thinning current pine stands.      

Further reading:

Phone: 800-333-1010
Email: jordan.rappaport@kc.frb.org

.

Dr. P. David Jones

(09:03)
Hear Conference

Comment

In the future, sawtimber quality will impact price

Dave Jones is Associate Professor in the Department of Forest Products at Mississippi State University. A couple of years ago, testing revealed that visually graded southern pine dimension lumber was not as strong as tests made back in 1991, when visual grading rules were last established. Southern pine lumber design values would have to be changed and those changes might affect roof truss designs and other areas where strength is an important factor. The differences were significant and worried lots of people in the southern pine lumber industry. In New Southern Pine Design Values, 9/27/12, we read, "[The Southern Pine Inspection Bureau] "did not specifically study why a change occurred this time, but a change in the timber resource mix is one of many variables that can affect the strength of structural lumber."
      In his lecture, Growing Trees, Making Products, and Maintaining Quality, at Auburn University on February 26, 2014, Dr. Jones made it clear that "what we do in the forest changes the products we produce." He implies that in a future world where pine sawtimber demand is not as great as it was prior to 2008, nor as great as short-term forecasts predict, the QUALITY of the wood we grow will become very important. The 40+ minute lecture, accompanied by excellent graphics, is well worth your time if you plan to grow southern pine sawtimber.
     Dave wrote to AFOA, "A deep read that matches my comments can be found in Formation and Properties of Juvenile Wood in Southern Pines."

We asked Dave for the take-home message to forest landowners:

  • in the future, managing for quality will be important
  • management mistakes can be healed with time

Phone: (662) 325-8454
Email: pdjones@cfr.msstate.edu

.

Lenny D. Farlee

(12:45)
Hear Conference

Comment

Crop Tree Management

Lenny Farlee is Sustaining Hardwood Extension Specialist at the Purdue University Forestry and Natural Resources Department. In an article entitled, Crop Tree Management for Fine Hardwoods(1403a), Walnut Council Bulletin, 12/13, Farlee introduced readers to the concept of Crop Tree Management.

   Crop tree management (CTM) is a relatively simple and easy to use tree management system well-suited to small woodland ownerships. CTM, also called crop tree release, can be adapted to manage for several woodland ownership goals including timber production, wildlife, aesthetics, biodiversity and water quality protection.
   The system is based on the principle of managing to promote the health and vigor of those trees that best achieve your management goals. This is normally done by deadening or felling trees competing with the crowns of selected crop trees so that each crop tree is free to grow on 75 to 100% of the crown circumference (3 or 4 sides). This is often referred to as a crown touching release. This method has been demonstrated to increase the growth of released crop trees in comparison to area-thinned or unthinned forest stands.

Reading & Resources:

Phone: (765) 494-2153
Email: lfarlee@purdue.edu

.

Henry I. Barclay, III

(14:37)
Hear Conference

Comment

Tax Changes in 2014 and Avoiding a Tax Trap

Henry Barclay is a Certified Pubic Accountant and Managing Partner of Lehmann, Ullman & Barclay LLP, a firm that "has been involved in timber related services almost since its inception in 1912." Henry is active in the Forest Landowners Tax Council (Chairman of the Board), the Forest History Society (Treasurer), and the Alabama Forest Owners' Association (Past President and Member of the Board), so he is a tax expert who understands and is truly interested in forestry and forestland owners. We last saw Henry when he was speaking at the Alabama Natural Resources Council Symposium in Prattville. Click here for his Symposium slides. His notes (rewritten for this webcast) follow:

At that event, we discussed the potentially significant effect of the the tax act which kicks into play this year. For Forest Owners, some changes are:

  • Rates are generally higher: gains over $400K to $450K result in LTCG rates of 20% federal, an increase of 33 1/3 % from the previous 15%.
  • Investment income, over $200K is assessed a Medicare surtax of 3.8%
  • Investment income includes passive income or activities such as timber farming for which the taxpayer cannot substantiate the significant material participation tests. Typical targets for this income treatment are limited members/partners in LLCs and LLPs or Sub Chapter S corporations involved in timber farming (these are ordinary estate planning structures).

IRS is taking a close look at the question of Hobby Losses under section 183 when it is looking at Timber Farmers. It is important to maintain the attributes of business activities when conducting business activities. Adequate and stated business objectives, business plans, records, separate checking, identification, professional consultation, advertising, attendance at continuing education events, networking with other business owners are all activities which on the whole give the appearance of the fact that you are in a business.

Timber owners should always anticipate the tax cost of timber transactions.
Generally, timber owners should maintain a log of their activity, date, time, task performed, on their property to substantiate their material participation. Also, upgrade your management plan and keep it current. Avoiding taxes is becoming a fulltime job!

 

Phone: (205) 439-6520
Email: henryb@lub.com

.

Arnold (Beau) Brodbeck

(19:23)
Hear Conference

Comment

Mapping Trails, Roads, and Property Corners with Smartphone App

Beau Brodbeck is a Forestry, Wildlife, and Natural Resources Regional Extension Agent with the Alabama Cooperative Extension System. While talking with Beau at a forestry symposium a few months ago, we thanked him for introducing AFOA to Chris Dillard and his GPS 101 programs that have been so eagerly attended at our Annual Meetings (the April 25 session is already developing a stand-by list). We talked about Chris's plans to start a new round of training sessions using smartphones as GPS and GIS platforms, replacing the handheld GPS units and GIS software on laptop computers which he currently uses in the training sessions. That's when Beau pulled out his smartphone with several "tracks" of his morning exercise runs.

Could we create tracks of trails and roads in the woods? Yes. Could we give them a name, such as "Cabin Road" or "Canyon Trail"? Yes. Could we mark places like "Southwest Corner Hargrove 40"? Yes. What's it called? MotionX-GPS.

Since talking with Beau, we bought the $1.99 App and began testing it. There were a few problems learning to use the menus, but with repeated use, we have created maps of woods roads and corner posts. By clicking the "send email" icon in the App, KMZ files were sent to our desktop computer and iPad, both of which contain the free version of Google Earth (we could have sent the email to a friend or family member, too). A click on the KMZ file attached to the email opened Google Earth with track or waypoint clearly visible. We think you're going to like MotionX-GPS.

Phone: (251) 937-7176
Email: brodbam@auburn.edu

.

Billy Thomas

(23:16)
Hear Conference

Comment

How-to videos from University of Kentucky

Billy Thomas is an Extension Forester at the University of Kentucky. If you are reading these words, you have probably done a Google search for a product you couldn't find at local stores (poison ivy lotion, for example). Have you searched YouTube for a how-to video, say, how to play the harmonica? We use YouTube how-to videos all the time at our house, so we were really happy when we learned that Jeff Stringer, Billy Thomas and others at UK Extension had put together more than a dozen how-to videos on a variety of forest management tasks. Today we asked Billy to introduce us to the video collection.

A Sampling of the University of Kentucky Forestry Video Titles:

Phone: (859) 257-9153
Email: billy.thomas@uky.edu

.

Dr. Peter J. Smallidge

(25:01)
Hear Conference

Comment

Timber Growing Contest

Peter Smallidge is the New York State Extension Forester and Director of the Cornell University Arnot Teaching and Research Forest. During the past few months, my wife (AFOA Office Manager, Eyvon Laechelt) has been talking about setting up a sample plot in the forest to measure how fast our trees are growing, so when we read about The Northeast Timber Growing Contest in the New York Forest Owner, March/April 2013 and January/February 2014, we thought, "Maybe we can do something like that."

"Following the contest guidelines published at www.TimberContest.com, forest owners may team-up with forestry professionals to take an active role in growing timber and wood volume. Timber stand improvement, site enhancement, and the providing of water and nutrients are some of the tools that might be used to increase productivity and timber quality. Area and volume measurements are taken at the beginning and at regular time intervals. Seedling counts are also taken for those interested in advanced forest regeneration."

Julie and Dean Faklis (Team Springwater) "created [three plots in a dense red pine plantation], marked the trees and made measurements. It was fun to get out in the woods as a couple and shoot the breeze while getting something done. Perhaps our trees will grow....or we'll find some use for them to make room for new stock. With paint on her fingers, a clipboard in her hand, and a smile on her face, Julie was overheard to say, 'Dean, winning isn't everything, I'll still love you. But...I still want to win!'"

Rules, Score Sheets, Articles and Webinars about the contest and woodland management are all at www.TimberContest.com.

Related Reading: Conducting a Simple Timber Inventory by Henning and Mercker

Phone: (607) 592-3640
Email: pjs23@cornell.edu

.

 

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