TAMARACK - A GEM OF THE NORTH By Bill Cook

(Editor's note: With a cover photo of Autumn's golden tamarack this issue, who better to tell us about this native tree than our man in the UP, Bill Cook. )

A bit of a rogue in the world of trees, tamarack may be misunderstood by many and recognized by even fewer.

Most October travelers in the North Country will notice the oddity of pines turning yellow. However, tamarack is not a pine despite having clusters of "evergreen" needles. It is in the genus "Larix" and not in the genus "Pinus". And, turning a smoky gold in the fall, after most of the hardwoods have already lost their leaves, is a normal and spectacular annual event for tamarack. Fresh light from an October sunrise draped across a large swath of tamarack is as breathtaking as the bright colors of maples and aspen.

Tamarack typically grows in lowland areas, although oddly enough, its best growth is on upland areas of good soil. It is one of the few pioneer invaders of old fields, miraculously able to compete with dense sod.

Tamarack is one of our fastest growing Michigan tree species. It likes sun and will not tolerate much shade. That's why most of the time it is relegated to the wetlands, where fewer tall species compete for light. However, if you pay attention in the swamp during the growing season, you will see tamarack on the higher bumps and lumps, not in the water.

Tamarack wood is beautiful, with a soft golden-green glow. It's quite dense and might make superior flooring or paneling. It has unusual drying requirements, but those are available to those who dare to work outside normal human preference patterns. The barn-wrights of a century ago recognized tamarack for its strength as long beams. Somewhat resistant to decay, it was used for fence posts when available. Farmers who hayed the marshes knew that tamarack made good stock for corduroy roads.

"Larix laricina" is the scientific name for tamarack. Larix might be a good name for a black lab, but laricina seems to have an entirely feminine quality. It's one of my favorite trees, so my daughter's middle name is Laricina.

There are about ten other species of "Larix" in the world. More commonly they are called the larches. Once again, tamarack stands out as an exception with its unique name. In Michigan, we have a fair amount of European larch. The western states have the western larch. There are other larches in Europe, China, Asia, and Japan.

Michigan's tallest tamarack is nearly 90 feet but if one looked, they could probably find a taller specimen. The trunk is straight and foliage a soft, feathery green. Clusters of needles burst from short spur branches, unlike any other genus of conifer. The cones are small, about a half-inch. The flaky bark is largely gray with a hint of salmon pink.

Once a tamarack silhouette becomes imprinted, it's one of the easiest trees to identify at driving 55 miles per hour. Tamarack is one of the unnoticed gems of the north.

TIMBER DEPLETION DEDUCTION
By Jim Burns

In my last article, I explained that timber sale income should be reported as capital gain for income tax purposes. This insures that you will only be taxed at the lowest tax rates of 5% to 15%. If you mistakenly report this same sale as ordinary income, the government will be happy to collect your taxes based on much higher ordinary tax rates. You have a three-year period in which to amend this mistake, but don't expect to get a letter or call from the IRS informing you that you'd paid more than was necessary!

In any event, when you report your timber income as a capital gain, you are entitled to take a Timber Depletion Deduction from the gross revenue to arrive at a net profit which is then taxed at the federal capital gains tax rates. This depletion deduction is calculated in the same manner whether you report income under Section 631 (a) or 631 (b) of the IRS Code.

The depletion deduction is a tax free return of how much the trees (timber), growing on your land, cost at the date you acquired the property. "But I didn't pay anything for trees or timber when I received the property" you say. Exactly!

In this region of the country, a timberland purchase is normally for a lump-sum amount of money, say $150,000.00. This purchase price includes the acreage of soil involved plus the trees and any other components of value, such as a house or water frontage that comes with the land. So your $150,000.00 bought you a collection of assets, which individually contain fair market values as of the date of acquisition.

In order to separate the value of each of these assets, an appraisal is required. Using standard appraisal methods, let's say I find that this property has asset values of: Summer Cabin: $60,000.00, River Frontage: $10,000.00, Bare Land Value: $20,000.00, Timber: $110,000.00

Total $200,000.00 Does this mean that the cost basis in the property is $200,000.00? Absolutely not! The cost basis in the property is what you paid for it-$150,000.00. The whole appraisal process revealed that the relative value of each asset to the whole is: Summer Cabin 30%: $45,000.00, River Frontage 5%: $7,500.00, Bare Land Value 10%: $15,000.00, Timber 55%: $82,500.00, Total $150,000.00.

 Continuing with this example, let's further say that the timber growing on the land was good quality sugar maple and red oak with a total merchantable volume of 200 MBF (thousand board feet). The timber depletion deduction for this property is then $82,500.00 divided by 200 MBF or $412.50 per MBF.

This means that for every thousand board feet of sawtimber you sell you will get to deduct $412.50 from the sale price to arrive at your taxable income. In this example, let's assume you sold some of the timber for $400.00 per MBF. If this were the case, you would have a loss of $12.50 for every MBF sold. This loss would be deducted from any other capital gain you might have and/or have a recovery against ordinary income.

The foregoing example illustrates an outright purchase of forestland, but there are a number of different ways that one can acquire property, each of which has a direct bearing on the cost basis. Remember, the higher the cost basis, the less income you will pay.

Two other common ways that people acquire land are:

1.) You receive the timberland as a gift; or
2.) You inherit it from another person after their death.

In the first situation, Grandpa bought the property in 1938 for a total sum of $40.00. In 1968 he then deeded the land to your father as a gift. Last year, your father does the same and gives the property to you. The sentiment is nice, but you now have a property worth $150,000.00 and a cost basis for depletion of only $40.00. This was not such a good deal if you are trying to minimize taxes.

The better option would have been for your father to allow you to inherit the property upon his death which would give you the current market value of $150,000.00 for your new cost basis.

Keep in mind that expenses, such as legal fees, surveying, cruising of timber or other closing costs are also included in the cost basis when you purchase or otherwise acquire a property. Any subsequent capital expenses to the property such as tree planting, road building, etc., are also added to your cost basis.

Jim Burns is a professional forester who owns and operates Burns Forestry Consultants and Timber Tax Services. For more information, call him at 989/348-3596 or 906/ 364-3238 with your questions.

REASONS WHY HARVESTING CAN BE BAD
By Bill Cook MSU Extension Service Forester

 We often focus on the many reasons why timber harvest is good. Maybe a tongue-in-cheek approach to the inverse might emphasize some perspectives many folks don't often consider. Let's think about all the reasons why timber harvesting is bad! Remember, this is a bit of a spoof.

If we don't harvest locally, the cost of everything that contains wood will increase - lumber, paper, panels, packaging, clothing, chemicals, food additives, and many more items. We can buy wood from greater distances away and consume more fossil fuels in the process. Our friends in the OPEC nations are with us on this idea.

Forcing harvest to occur in places where it shouldn't will accelerate the loss of rain forests and other forests in unregulated countries. It seems silly to produce what we use. Trading sound science for unsustainable practices seems more and more popular. Besides, who cares about Brazil or Indonesia?

Treating forests as strictly parks and playgrounds also allows timber to be imported from somewhere else. For every acre "reserved", another 15-20 acres somewhere else may be subjected to poor harvest practices. But then, that's not our problem is it? As long as we can play up north, then who cares?

Benign neglect is the best invitation to forest health problems. So, you want a deteriorating forest with a hearty dose of unwanted species? Well then, make sure you harvest no timber. There's nothing like a little neglect to attract the bad guys of the forest world. Besides, it's the American way to use tax dollars to fix something that could have been avoided earlier, at a profit.

Not harvesting is a great way to break our rural economic backbone. All the recent talk of shaky economies and rural development really shouldn't consider our single greatest natural resource asset in the North Country. Forests. It's a good idea to take our most stable and good-paying jobs and trade them for unstable, low-paying jobs. It will save trees and make downstate folks happy. There are plenty of examples in the country where this has happened. Look to the Pacific Northwest. After all, big cities are wonderful places for our young folks to migrate to.

It may be possible to significantly reduce dependency on foreign oil through the use of trees. But that's not a good idea because we would have to harvest trees to do so. As we look around the North Country, we won't see a lot of corn or soybeans. However, we do have a lot of forest, and much of it remains unharvested and under-producing. But then, that's the way we like it. Better to send those dollars to Kansas and Venezuela. Besides, we like burning coal.

We don't really care much about wildlife and habitat. So, it's OK to let that forest continue along an unmanaged route. Deer, grouse, woodcock and hundreds of other species will just need to adapt to different conditions. Those animals that don't like it can just move somewhere else. Who really pays any attention to most wildlife anyway? Everybody knows that nature knows best, so avoiding timber harvest will certainly help us along this path. Those pre-settlement conditions should rebound within a few years or decades, even if the science demonstrates that it is impossible. Who believes scientists anyway? Fiction is far more romantic than fact.

The forest always looks horrible after a harvest so, naturally, it must be a bad thing. Pretty is a good thing. We all know that visual quality is a great measure of ecological integrity. After all, something that looks bad must be bad. It's the same with people, if we don't like the way they look, then they must be bad people.

If we return to a more serious tone, it becomes clear that timber harvest provides many benefits to not only forest owners but society as a whole. Somewhere over the past few decades many of us seem to have lost this knowledge or not learned it in the first place. Maybe it's time you considered a timber harvest? Just look at all the "good" things you can avoid!