Green Horizons News for people who take their trees seriously Vol. 7, No. 1 Spring 2002 Jim Drew Awarded 2001 State Tree Farmer of the Year Bob DeWitt Private Lands Regional Supervisor At the 22nd annual Missouri Tree Farm Conference held recently at Osage Beach, Mo., Liberty, Mo. resident and Caldwell County landowner Jim Drew was recognized as the 2001 State Tree Farmer of The Year by the Missouri State Tree Farm Committee. Jim Drew has been actively involved in forest and wildlife management on his 230 acre Caldwell County farm since initially purchasing 140 acres in 1988. The Drew Farm has been a Certified Tree Farm for almost twelve years. With his wife Kathy keeping the home-fires burning, Jim has involved their sons in outdoor activities on the farm from the earliest possible opportunity. Sons Logan, 15, Jordan, 13, and Jameson, 9, have routinely accompanied their father on trips to the farm and participated in a wide variety of recreational as well as work-related activities. While it should be obvious that the Drew family, led by father Jim, has done substantial natural resource management work on their farm, a quick list of management practices implemented shows the width and breadth of their accomplishments -- tree planting, walnut pruning and release, timber stand improvement, wildlife openings, foodplots, brushpile construction, edge feathering and timber harvesting. A unique characteristic of the Drew’s activities is that all of the practices, except harvesting (which is generally left to professional loggers) have been completed by Jim and his sons. Also, harvesting is motivated by wildlife habitat improvement and the need for funds to implement other conservation practices on the farm rather than monetary gain. Perhaps even more important than the natural resource improvements that have been done, is Jim Drew’s willingness to share with others what he’s learned and accomplished over the years. Jim has hosted a number of tours and workshops where school, scout and landowner groups have been introduced to the wide variety of conservation work that has been completed. Jim is also an active member of his local chapter of the National Wild Turkey Federation, whose fundraising activities each year raise thousands of dollars for landowner conservation programs. Jim has been active with the Missouri Tree Farm System state committee as a landowner representative since his award as Missouri Region One Tree Farmer of the Year in 1999. Jim received additional recognition in 1999 for his and his family’s efforts when the Missouri Conservation Federation awarded Jim with its "Forest Conservationist of The Year" award. In part, this award was received because of Jim’s efforts to conserve the forest resource in a part of the state (northwest) where commercial production agriculture dominates the landscape. Jim is quick to share his honor with others and credit their assistance in his activities. Jim began working with Missouri Department of Conservation foresters just shortly after purchasing his initial acreage - a relationship that continues to this day with his participation in the Forest Stewardship Program in an effort to ensure a sustainable forest resource. Jim and the foresters have also coordinated heavily with the USDA office in his county and he has utilized the Wildlife Habitat Incentives Program (WHIP) to help accomplish his management goals. Covering Your Bases: Getting the Most from Your Timber Sale John Dwyer and Shelby Jones Consulting Foresters As a forest landowner it is conceivable that you will someday contemplate the sale of your timber. The gain from the sale of the timber can represent either a capital gain or an ordinary income gain. In either case, you will be required to pay taxes on the gain. Gain is the operative word, implying that you may subtract something from the total amount you received. In fact, you may subtract the total amount you spent to acquire the asset. So in order to minimize the amount of gain, thereby, reducing your tax liability you need to establish the cost basis in your capital assets such as timber. Establishing cost basis means that you calculate the proportionate amount of the original purchase price that you spent on the timber. It is obviously best to do these calculations soon after acquiring timbered property, but it may also be done years later if good records have been kept. So, how do you do it? First, you must have an inventory of the merchantable timber volume at the time you acquired the property. If a timber inventory has not been done a forester can "cruise" the timber and estimate both the current volume and what it was when you acquired the property. An estimate of fair market value is also provided as part of the inventory. Second, you need to calculate the proportion (percentage in decimal form) of each asset to the total fair market value or appraised value. Here’s an example. Suppose you acquire a property for $165,000. However, you incur additional costs of $1,500 to hire a forester to complete an inventory, $2,000 for a boundary survey, and $1,000 for closing costs. The total acquisition cost is then $169,500 ($165,000 + $1,500 + $2,000 + $1,000). The forester’s inventory lists 40 MBF (thousand board feet) of walnut sawlogs valued at $9,975, 19 MBF of walnut veneer logs valued at $20,330, and 100 MBF of mixed oak/hickory sawlogs valued at $10,500. The total appraised value of the property is $159,000 which could also include; buildings, fence, merchantable timber (identified above), bare land and a young (non-merchantable) tree plantation. To continue calculating the value in the walnut veneer log account use the following procedure. Divide the appraised value of the walnut veneer sawlogs ($20,330) by the total appraised value of the property ($159,000) to get the proportionate value as a percentage (in decimal form) ($20,330 ¸ $159,000 = 0.1279). Take this decimal and multiply it by the total acquisition price of $169,500 to get the original cost basis of $21,679.05 for the walnut veneer sawlogs ($169,500 x 0.1279 = $21,679.05. This procedure is repeated for each of the timber products identified in the inventory when they are sold or harvested. So, why take the time to make these calculations? We do it so that we can recover our cost basis in the timber account when the timber is harvested or when the logs are cut from the timber and sold or used in the owner’s business. This process of recovery is called depletion. The third step in calculating depletion is to calculate the depletion unit rate and the depletion deduction allowance. To calculate the depletion unit rate, divide the original or adjusted basis (if the timber has grown or changed over time) by the current volume in the account ($21,679.05 ¸ 19,000 bf) to get a depletion unit rate of $1.14 per bf. If we assume a sale of 10,000 bf of walnut veneer logs immediately after purchase of the property then our depletion deduction allowance is: $1.14/bf x 10,000 bf = $11,400. So federal income tax would be paid on the net taxable gain shown in Table 1. Table 1 Gain from timber sale: $20,000 Less: Consulting forester’s appraisal/marketing/administration $2,000 Depletion deduction allowance $11,400 Net Taxable gain: $6,600 Assuming our landowner is in the 28 percent federal income tax bracket, his action of establishing the cost basis of his timber saved him over $3,700 in tax liability because he pays tax on $6,600 instead of $20,000. Which would you rather pay? Contact a consulting forester or public agency forester if you have an interest in completing an inventory of your timber. It is the first step in realizing significant tax savings on timber income. Need to know more details? A free publication called "Federal Income Tax on Your Timber- A Key to Your Most Frequently Asked Questions" is available from Missouri Dept. of Conservation offices and many consulting foresters. Forest Owners Guide to Federal Income Tax; Agriculture Handbook No. 718 is available from the Superintendent of Documents, www.bookstore.gpo.gov. 22nd Annual Missouri Tree Farm Conference The 22nd annual Missouri Tree Farm Conference brought a pre- conference demonstration from MU Forestry Professor John Dwyer and Consulting Foresters Fred Crouse and Dennis McDevitt, to a group of 35 tree farmers. The group met at a private farm near Eldon, Mo. on Feb. 22 to discuss timber stand and wildlife habitat improvement. Professional Chainsaw Safety Instructor Joe Glenn provided the group with a chainsaw safety demonstration. Glenn is the official Professional Logging Instructor for IFIC in Indiana and MFPA in Missouri. At his demonstrations he discusses appropriate safety equipment, safe cutting methods and increasing the life of your equipment. The conference, which was held on Feb. 23 at the Country Club Hotel in Osage Beach, Mo., was attended by 100 people. The featured speaker was Paul Tauke, of the Iowa Department of Natural Resources, who presented a workshop on "Identifying and Establishing Your Forest Management Goals". Other workshops included "Understanding and Improving the Health of Your Forest" presented by Bruce Moltzan, Forest Pathologist with the Missouri Department of Conservation and "Cost Share Assistance for Landowners" presented by Doug Wallace, State Staff Forester with the Natural Resouces Conservation Service. If you are interested in attending a demonstration by Joe Glenn or hosting one in your area, contact him at 573-223-3427 or e-mail to joeandjan22@hotmail.com Newsletter deadlines Because your newsletter must be in the mail at least 30 days before the next organization meeting and another three weeks is needed to get it ready and through the printing process, the deadline for the next issue is: June 15, 2002 Send your newsletter material to: Christa Jennette, 203 Anheuser- Busch Natural Resources Bldg., Forestry Program, University of Missouri, Columbia, MO 65211. Phone (573) 882-9866. Your management tips, ideas and experiences are most welcome! Award Winning Inspecting Foresters Region 1 Phil Sneed Terry Truttman Region 2 Wally Brumfeild Brian Schweiss Region 3 Susan T. DeWitt Region 4 Jim Carter George Clark Josh Shroyer Region 5 Michael Fiaoni John Keesey Region 6 Steve Paes Region 7 Doug Enyart Matt Jones Rick Kammler Silver Certificate Award Winners Roy Beasley Tulia, Tx. W. Ray Brown Roanoke, Tx. James Coe, Jr. Fulton, Mo. Quinten Cole Lebanon, Mo. George Hellmuth St. Louis, Mo. Jonathan Lehr St. Joseph, Mo. Maurice Lonsway, Jr. St. Louis, Mo. Bill Mayberry Dawn, Mo. Herb M. Sayers Potosi, Mo. James & Arlene Verfurth Billings, Mo. Gold Certificate Winners East Perry Lumber Company Frohna, Mo. Vincent & Richard Klott Hermann, Mo. ------------------------- Regional Tree Farmers Region 1 Phillip Moore Pleasant Hill, Mo. Nominating Forester: Joe Alley Region 2 Grant & Joyce Glatt Arnold, Mo. Nominating forester: Wally Brumfield State Tree Farmer of the Year Jim & Kathy Drew Liberty, Mo. Nominating Forester: Terry Truttman Memorial Service to Honor Generous Tree Farmer Those who knew Dr. J. Otto Lottes described him as generous, honest, dedicated, enthusiastic and full of life. On Feb. 2, 2002, Dr. Lottes, an avid tree farmer born in Altenburg, Mo., died at Brandonwoods Retirement Center in Lawrence, Kan. where he had lived since 1997. He was 95. Well-known for his work in orthopedic surgery, Dr. Lottes was also an avid forester. His land was in the Forest Cropland Program and he had also been a member of the Tree Farm Program. He was known among the medical community for getting others involved in forestry practices. Over a lunch meeting in 1978 with Dr. Hugh Stephenson, then chief of surgery at the University of Missouri-Columbia, Lottes donated part of his forest land, totaling nearly $1 million, as seed money for a Health Sciences Library on the University of Missouri Campus. Three years after his 1982 retirement, the J. Otto Lottes Library was dedicated in his name. His contributions reached beyond his generosity. An accomplished orthopedic surgeon, he developed the Lottes nail. This nail, inserted into the shinbone, allowed a patient to walk as early as two weeks after a surgery. Lottes received two degrees from the St. Louis College of Pharmacy. He then attended Southeast Missouri State University for two years before transferring to the University of Missouri-Columbia. There, he completed his bachelor’s degree and went on to receive his medical degree in 1937. He is survived by his son, George A. Lottes of Lawrence, Kan.; and two grandsons. His wife, Dorothy, died earlier. You are invited to attend A Memorial Service and Tree Planting in honor of Dr. J. Otto Lottes, M.D. at the J. Otto Lottes Health Sciences Library on the University of Missouri-Columbia campus Hugh Stephenson, M.D. will be the master of ceremonies A resolution will be read by Dr. Newton White Also speaking are State Forester Bob Krepps and TJ Cooper, M.D. James Otto Lottes II, grandson of J. Otto Lottes, will be reading a poem. Please mark your calendar and plan to attend Calendar of upcoming events August 23-24, 2002 Special Forest Products Production and Marketing Conference, "Exploring Markets for Food, Floral, Medicinal and Craft Products", to be held at Sinsinawa Mound Conference Center in Sinsinawa, Wi. There will be a second conference held at the Drury Lodge and Convention Center in Cape Girardeau, Mo., on Oct. 25-26, 2002. For more information call Julie Rhoads at (573) 882-3234; or e-mail her at: rhoadsj@missouri.edu May 4, 2002 Missouri Nut Grower’s Association Spring grafting meeting will be held at Norval Netsch’s farm (795 SE 1300, Windsor, Mo.65360). For more information, call 660-647-3367. The summer meeting will be held at Hammons in Stockton, Mo. on July 13, 2002. May 23, 2002 The Karkhagne Club will hold their next meeting at White River Trace. Contact Karl Wolf at KarlR22@aol.com. Send event dates to: Christa Jennette 203 Anheuser-Busch Natural Resources Bldg. MU Center for Agroforestry Columbia, MO 65211