You DO have basis in the acreage with the trees. Your acquisition cost should be allocated to the land and building in a way that accurately takes into account the values of each. and since the trees were part of the purchase, you need to allocate part of your cost to them. I realize that a lot of people allocate 100% of the cost to their bulldings, but this is wrong. and an IRS audit will reverse this mistake.
I am impressed that you have the ability to mill your own trees. The act of cutting the trees is not a taxable event, because you intend to use them. But the basis in the trees would become part of the cost of the buildings you build therewith. and all of your costs in cutting, hauling and milling will be capitalized as well.
I bought a house on 15 acres.
I will have between $50,000 $55,000 in the house including repairs when I sell it and 3 acres for 65 to 70K.
The remaining 12 acres basis will be $00.00 after the house sells. I do not have a basis established yet for the trees. Loggers have offered me $10,000.00 (low ball I think) for aprox.100 large pine trees.
Would it be a taxable event if I cut and milled the trees then built multi family housing with the lumber?
No sale, no capital gain, right?
I intend to rent the multi family new construction long term, as I have owned multi family housing for 26 years.
I wouldn?t go to all the trouble just for the tax savings of $1,500 ($10,000 X 15%) but I think the highest and best use value for the trees is lumber to build multi family for my long term income, considering one 2 x 4 stud is almost $4.00 with sales tax.
Your conversation, thoughts and suggestions are welcome!