Does Money Grow on Trees?
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Managing your forestland can be an excellent long-term investment. Over the years, income from managed timber stands has exceeded that from most other crops in terms of value added per acre per year. Even managed pre-salable timber stands have increased the property value of forestland substantially over bare or unmanaged, cutover woodland. Annual returns from 0 to 40 percent are possible from forest management. The range of returns is wide because of variations in soil productivity, stand condition, tree species, markets (both availability and price fluctuations), intensity of management, and availability of financial incentives.
In today’s world, it is easy to track investments and watch them grow, in forestry this is not so easy. It is not easy to see trees grow, but they do increase in size, as well as value. In as little as 35 years a well-managed stand of Southern pines can go from being seedlings to being harvested as sawtimber. If this stand is well managed it is capable of accumulating 250 to 500 board feet of volume per year.
As prices and volumes increase trees generally become usable for higher value products, as they grow larger. Small trees, 4-6 inches in diameter may only be suitable for pulpwood, larger trees, 6-14 inches in diameter, can be used for chip-n-saw, and even larger trees, 14 plus inches in diameter, can be used for sawtimber, with high quality stems qualifying as veneer logs and poles.
In most of North Carolina standing trees are roughly seven to eight times as valuable for solid wood products as for fiber or chip products. This makes it particularly important for landowners to manage for, and merchandise, the highest value products possible.
Of course, trees have additional benefits as a crop for landowners. Trees do not have to be harvested each year. This allows for the landowner to harvest when markets are favorable. Also, the value growth each year is not taxable until the trees are harvested.
Both federal and state governments offer financial incentive programs for woodlot owners. Several of these programs provide cost-sharing payments that reimburse landowners for timber management activities. Other programs provide tax incentives, tax credits, and deductions for reforestation expenses.
One program is Present-Use Value (PUV). Present Use Value is a deferred tax program available to landowners that uses the value of land in its current use as agricultural, horticultural, or forest land. It allows the qualifying working land to be taxed at its farming value rather than its market value for development, which is the standard. Landowners need to know that working land should be managed at an appropriate level to ensure good social, environmental, and economic impacts. It is important to note the PUV program is voluntary and certain requirements must be met. For instance, forested land requires a forest management plan to be written and carried out before it can be accepted into the program. Individual landowners must enroll their own property and should not expect it to happen automatically! Also, property that was previously enrolled in the PUV program must be re-enrolled within 60 days of change in ownership. Oftentimes, landowners think land that is passed down in the family remains automatically enrolled. Be aware, the 60-day window still applies and the new property owner must re-enroll in the program or the land will be taxed at the fair market value. PUV is a deferred tax program. Deferred taxes are the difference between the fair market value and present-use value. Think of deferred taxes as being “put on the shelf” until the land use changes. In other words, there is a penalty imposed when land is taken out of agricultural use and the deferred taxes from the previous three years are levied against the landowner.
In 2019 Rowan County will be doing a property tax revaluation. Rowan does this every four years. Properties are revalued according to market real estate prices. So now would be a good time to enroll in the PUV program if you are eligible.
To find out more about these programs come to the “Financial Incentives for Forest Management” seminar at the N.C. Cooperative Extension, Rowan County Center (2727 Old Concord Road, Salisbury) on Thursday, October 25, 2018, 6–8 p.m. Rowan County Tax Office representatives, Extension Forestry Specialists and the North Carolina Forest Service will be on hand to answer your questions about Forest Management, Present Use Value Program and how to get the most profit from your forest investment. Call 704-216-8970 to sign up for this free program.