PATH Special Tax Rates for Timber for Corporate Sales

Energy & Resources|Tax

By Mike Winsko

Individual taxpayers have long benefited from Section 631 of the Internal Revenue Code, which allows for a special long-term capital gains tax rate on gains or losses in the case of timber, coal, or domestic iron ore held for one year or more. 

The enactment of the Protecting Americans from Tax Hikes Act allows “C” corporations to be afforded a similar benefit for qualified timber gains for tax years beginning after December 31, 2015. 

A qualified timber gain is the excess gain over losses of timber, held more than 15 years, that is sold or used for the taxpayer’s trade or business.  For a “C” corporation to qualify, it must have both a net capital gain and a qualified timber gain to utilize a lower tax rate of 23.8%, whether or not its applicable tax rate exceeds 35%.  Taxpayers that qualify can use the special tax rate of 23.8% on (1) qualified timber gain; (2) net capital gain; or (3) taxable income, whichever is the lowest. 

The taxation of the natural resource industry can be complex, please contact us with any questions and visit our Energy and Resources Industry Group page to learn about the services that we offer

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