GETTING THE MOST OUT OF YOUR PROPERTY
By Rick A. Lucas Conservation District Forester

The fall season generally finds many private landowners more active on their property than any other time of the year. With the cooler temperatures, and less bugs, many individuals are busy finalizing firewood needs, preparing for the rapidly approaching hunting seasons or any other number of activities enjoyed on their property. This is also the best time of year to start planning for activities that can be applied next spring. To help aid you in the planning process, consider the following activities.

Many landowners have only a vague idea of where their property boundaries lie or unwisely assume that existing fence lines accurately define their property boundaries. When land is not being managed, unclear boundaries may not be a problem; however, they can become important when timber cutting or improvement cutting begins. To protect your land against encroachments and adverse possession, you should have it determined where your boundaries are, establish permanent corner marks, and maintain marked boundary lines. You should hire the services of a competent surveyor to establish boundary locations.

As a landowner, you can request various levels of survey work from a surveyor. At a minimum, all corners should be located and marked. Flagging the boundaries is an additional expense, and permanently marking the boundaries is the most expensive option. When survey work is done by a surveyor, request a copy of the field notes for your records. With regards to timber harvesting, prior to the harvest, the very minimum you should do is to walk the property boundaries with adjacent landowners to make certain that you all agree on the property lines. Have the line surveyed professionally if there is any question. Also, you may wish to leave a buffer at the property line to avoid claims of wrongfully harvested timber.

Careful identification and marking of boundaries is essential to avoid misunderstandings and possible legal troubles that would result if timber was harvested from adjacent property without consent or harvested from an area on your property that you did not wish to have harvested. This information should be included in the timber sale contract.

One of the most worthwhile investments you can make on your property is a system of access roads and/or trails. A trail is an established route primarily used by a farm tractor, all-terrain vehicle, pickup, log skidder and foot traffic. Their primary purpose is to provide access to aid you in the management and enjoyment of your property.

Recreational activities such as viewing wildflowers and picking mushrooms in spring, observing fall coloration, hunting, horseback riding, snowmobiling, riding all-terrain vehicles, skiing and hiking are all more enjoyable with a good trail system. A trail system opens your land to many recreational opportunities, but it also may provide access for fire protection, timber harvesting, tree planting, or other woodland management activities. Ideally, every road system should be planned and developed as if it will become permanent.

Forest openings have always been an important component of the landscape. In some respects, they have taken on an even greater role to the Lower Michigan forest owner now that the chronic wasting disease regulations are in place. A clearing in the woods can be a real magnet for certain kinds of wildlife. These herbaceous openings are areas where the ground is covered with a mixture of grasses and other herbaceous (non-woody) plants and where few or no trees are present. These openings are particularly important to woodland wildlife for nesting and rearing their young. They provide food in the form of herbs, grasses, and insects eaten by a variety of birds and mammals.

Whitetail deer and rabbits feed on grasses and legumes in openings, broods of ruffed grouse and turkeys feed on insects, and adult turkeys feed on grasses or berries. Blackberries and low-growing fruits attract raccoons and opossums. Indigo buntings nest in thickets in sunny clearings. The dense vegetation provides nesting and escape cover for many other woodland wildlife and places for raptors to hunt prey. Roadways and trails with trees cut back along the edges make excellent dual-purpose openings. To maintain these openings, the regeneration of woody plants must be controlled by periodic cutting.

Forest openings can also serve as sites to further supplement available food sources for your desired wildlife species with the creation of annual and/or perennial food plots. Managed food plots seek to improve wildlife habitat by providing larger quantities of nutritious foods, usually in the form of managed herbaceous openings or cultivated plots. Properly prepared food plots will yield many times more nutritional benefits in relatively small areas. When implementing food plots, it is important to recognize that each area is different and requires careful scrutiny to determine the limiting factors and best management practices to follow.

One of the most poplar requests for assistance from our office is wetland creation and/or enhancement. For the wildlife enthusiast, this cannot be overemphasized. Water is an essential component of wildlife habitat. It will attract a wide variety of wildlife- from songbirds to small mammals, small reptiles, amphibians, and insects.

To keep wildlife on your property year round, landowners should provide a water source. A rule of thumb guideline would be to provide permanent water sources no more than one half mile apart. Another important management objective is to keep the watershed (all the area drained by a creek, stream, or river) protected and intact.

Small woodland ponds, approximately 30 to 40 feet across and with varying depths, can be created in log landings or small clearcut areas to provide habitat for numerous frogs, toads, and salamanders. Deer, turkey, and other species of wildlife will also use them. Ponds should vary in depth from several inches to four or five feet deep.

State and federal agencies and conservation groups often have programs that may be able to assist you in identifying and restoring wetland habitats. Some may even cost-share expenses.

All wetland habitats are important and complex, that’s why they are regulated. Before altering your wetlands, you should contact your Conservation District or the Michigan Department of Environmental Quality regarding permits that may be necessary.

This article captures just a few of the elements that every private landowner should take into consideration while managing their property. With my next writing, I will share a few more ideas to consider while we endure the winter months. While you are enjoying your time on your property this fall or any time of the year for that matter, be on the look out for opportunities that can help you to get the most out of your property.

TIMBER TAX TIPS
NOBODY TOLD ME ABOUT INCOME TAXES!
By Jim Burns

You joined this association because you care about your timberland and want to manage it using sound forestry practices. If you have merchantable timber, you probably hired a forester, wrote a forest management plan, carefully designated your trees for a timber sale, then actually received payment for the trees harvested.

All of the forestry advice has paid off; you finally made some money. Everything (you think) is going according to plan, until you report your timber income for taxes, then find out you’re going to pay a huge sum of money in federal and state income taxes. Depending on the tax bracket plus the self-employment tax, some taxpayers end up paying more than half of their sale proceeds to the government!

Suddenly, all of this forest management doesn’t look like a good deal. If this scenario sounds familiar don’t feel bad; you have a lot of company.

Capital gain tax treatment of timber sale income is detailed primarily under Sections 631(a) and 631(b) of the Internal Revenue Code. This is a highly specialized area of the tax law. The terminology used and appraisal requirements that are specified are written for experienced foresters. Most accountants do not have this kind of background, nor are they confronted with timber sales on a regular basis, if at all.

Based upon my experience, I would say that at least a majority of tax accountants know nothing about the sale of trees (timber) being capital gain income. The ones that do have no idea how to calculate a depletion deduction or implement the other provisions of Sections 631(a) or (b). The result of this is that most timber sales are reported as ordinary income, which when added to other income can move the taxpayer into a higher tax rate bracket plus, require the payment of an additional 15.3% for the self-employment tax, resulting in the huge tax bill referred to in my opening scenario.

In order to get the lowest tax rates possible, income from the sale of timber should be reported on your federal and state income tax returns as capital gain. If you owned the timberland for one-year or longer, your income qualifies as long-term capital gain and will only be taxed at a minimum of 5% to a maximum of 15% rate. The self-employment (Social Security) tax of 15.3% and the Alternative Minimum Tax does not apply.

If you sold timber in less than the one year holding period, you should still report the income as short-term capital gain. The Net income will be subject to ordinary tax rates, but you still get to take a depletion deduction.

Whether you have long or short-term gain, you start with the gross income received then deduct any expenses associated with making the sale, such as payments to a forester for services, your travel expenses to inspect the land, etc. In addition to these expenses, you are entitled to take a timber depletion deduction for the volume of timber cut and sold.

The depletion deduction is a tax free return of your cost basis in the trees growing on the land at the date you acquired the property. How this deduction is arrived at would require a separate article to explain, but suffice it to say, it is an important part of minimizing the tax that you will have to pay. For example, clients of mine that purchased their property within the last 5 to 7 years usually end-up with a loss for tax purposes because their depletion deduction is greater than the amount they received for the trees that were cut and sold. In other words, they paid no tax, plus had a loss to deduct from other income.

Normally, the tax savings between reporting as capital gain versus ordinary income is large – thousands of dollars.

I learned about capital gain tax treatment of timber when I was a forestry student and recognized what a great tax benefit it was to practicing good forest management. It puts forestry on a par with investing in the stock market.

Most foresters learned about this in school as well, but by inclination, want to concentrate on managing forests and leave taxes to the accountants. Accountants, on the other hand, probably never heard anything about timber in school. Hence, there is a big information disconnect between the two professions, which took me years to realize.

I owned and operated a forestry consulting firm for 25-years and as a standard business practice always prepared the Form T required to substantiate the depletion deduction and capital gain for each of my timber sale clients. Without exception, the tax preparer for every client would call to ask if this was legal and the correct way to report the income! I didn’t matter if it was a high-powered tax firm in Boston or a local accountant.

For the past eight years I have been writing articles such as this and specializing in completing the tax reports for anyone’s timber sale. Every year I receive a disturbing number of calls from readers who tell me that their tax preparer informed them it was not legal, or it could only be used by big corporations, or farmers could not use it, or various other reasons too numerous to mention. Based upon this experience, I have to conclude that this is a common occurrence throughout the country, not just the mid-west.

Anyway, don’t give up on forest management – it pays off. Just remember to include capital gain taxation in your forest management plan for future timber sales. If you sold timber within the last three years and reported the sale incorrectly, all is not lost, file an amended return.

In any event, if your tax preparer says you can’t use the capital gain provisions, have them call me for a second opinion.

Jim Burns is a professional forester who owns and operates Burns Timber Tax Services and works in conjunction with Susan Metcalfe at Metcalfe Forestry LLC. For more information, call Susan at (989) 348- 3596 with your questions. www.metcalfeforestry.com metcalfetimbertax@hotmail.com

OAK WILT IN THE U.P.
By Bill Cook MSU Extension Service Forester

Fall is the season for the great northern color change and the beginning of the deer bow season. It’s also the time to treat areas of oak wilt that have been identified and prepared this summer.

For about a week in early October, a vibratory plow operator will be slicing through oak roots to isolate diseased areas underground. The plow will reach five feet deep. Before next spring, all the oak within the treatment area will need to be removed to prevent overland spread of the disease. It’s a harsh treatment for a harsh disease. And, it’s not cheap.

Oak wilt is an exotic pathogen that has been around the Midwest for decades. In many areas of Michigan and Wisconsin, the slow but certain spread has reached epidemic proportions.

Similar to Dutch elm disease, oak wilt is fatal. There are very few survivors.

The disease first enters an oak stand from small insects that carry the disease spores from a nearby infected stand. Once within a stand, the fungus spreads through the root systems. Species in the red oak group tend to graft roots between trees, an avenue exploited by this disease. Trees in the white oak group don’t typically display root grafting, but if infected overland, they too will die. At some point during the growing season, an infected tree will lose all its leaves within a few weeks. Any residual green branches or green sprouts mean something other than oak wilt has attacked the tree. Oak wilt fungus requires live tissue to survive. So, during the following spring and summer, after the disease kills a tree, then the fungus will produce a fruiting body. These gray lumps tend to push up the bark forming cracks. With a hatchet, the fruiting body can be exposed. It’s these fruiting bodies that attract sap-feeding insects that can spread the spores to healthy trees. They can also be transported with firewood.

Determining the proper distance between dying trees and healthy trees is a function of the size of the trees in question. The perimeter of the affected area is determined by these distances. Large oaks result in larger areas to be treated, as they have larger root systems than smaller oaks.

Once the perimeters have been established, the vibratory plow can be scheduled. The number of feet to be plowed depends upon the size of the forest health grant provided by the U.S. Forest Service - State and Private Forestry, as well as capacities within the Michigan DNR and MSU Extension. Landowners are responsible for only the removal of the oak. The set-up and trenching costs have been covered by the grant.

Since 2004 in Menominee and Dickinson Counties, over 26 miles of treatment line have been plowed at the price of $275,000. That’s about two bucks a foot. A little more than half this amount occurred on private land, with most of the public land on state forest.

So, how successful has this effort been? For the most part, the treatment appears successful in most places . . . so far. Each treatment line needs to be monitored for at least three years after plowing.

However, there have been locations where the disease has remained despite treatment. In some places, inoculum from nearby untreated stands can infect healthy stands next to treated areas. Newly infected trees are overlooked because they don’t show symptoms until the following year. Sometimes, large underground boulders, high bedrock, or other obstructions can prevent complete trenching, despite the diligent and conscientious efforts by contractors. Other times, there may have been an error in setting the distances between infected and healthy trees. And then, the distance charts are designed to be 95 percent certain, not 100 percent.

While treatment cannot guarantee containment of the disease, lack of treatment will guarantee the death of all oak within a stand. Doing nothing will have an impact. So, the decision of whether or not to treat oak wilt depends on the value a landowner places on the oak resource, and how well a landowner might want to get along with neighbors. The partnering agencies remove most of the financial obstacles. The final decision belongs to the landowner.

QFP FOREST TAX EXEMPTION EXPLAINED

 In September 2006 the General Property Tax Act (1893 PA 206, as amended) was amended to add the Qualified Forest Property (QFP) tax exemption (Public Acts 378, 379 and 380). The intent of this tax exemption is to encourage private landowners to manage their land for forestry by providing a property tax reduction as an incentive. Landowners approved for this tax exemption are exempt from some school operating taxes. Participating landowners are not required to allow public access on their land.

Landowners approved for this exemption must have a minimum of 20 vacant, contiguous acres (no buildings or structures are allowed), and are limited to exempting 320 acres per taxing unit. Landowners must manage their land with an approved forest management plan or forest management plan certified by a third-party certifying organization. Participating landowners are required to report to the Department of Natural Resources (DNR) annually the amount of timber produced on this land and whether any buildings or structures have been constructed on the land.