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March 5, 2003

Tornado's destruction may equal tax deduction

WEST LAFAYETTE, Ind. – Indiana taxpayers in the path of the tornado that struck on Sept. 20 may have a loss to report on their 2002 federal income tax returns if they had trees that were destroyed, according to a Purdue University timber tax specialist.

"Since shade trees and houses are real property, the loss is the lesser of the change in the fair market value of the property and the investment in the property as a whole," said Bill Hoover, a professor of forestry and natural resources.

The same rules apply for trees that have been ruined by ice storms, hurricanes or other natural causes. Most timber damaged by these means can still be sold to loggers, and Hoover said those wanting to claim a loss deduction must first attempt to sell the timber.

"If your timber can't be sold because it was destroyed, the ability to claim a loss will depend on whether or not you have established the basis for the timber separate from the land," Hoover said.

He said that determining the basis is often difficult and recommends woodland owners seek help from consulting foresters.

If a logger agrees to purchase the lumber, taxes can be deferred on this gain if other real property is purchased during the specified replacement period. Planting trees and buying land or other kinds of real estate qualify as replacement property.

Hoover said he encourages people to consult their tax advisers about this process.

Those who have lost shade trees around their homes need to consider the contribution the trees made to the property's value.

"Your loss also depends on how badly your house was damaged," Hoover said.

Writer: Barney T. Haney, (765) 494-8402, haneyb@purdue.edu

Source: Bill Hoover, (765) 494-3580, whoover@purdue.edu

Ag Communications: (765) 494-2722; Beth Forbes, bforbes@aes.purdue.edu; http://www.agriculture.purdue.edu/AgComm/public/agnews/

Related Web site:
National timber tax Web site


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