FLA continues to push for a legislative fix for timber casualty loss through the Forest Recovery Act.  As such, we appreciate the US Forest Service’s recent analysis of the estimated fair market value of loss timber from natural disasters.  As reported in a briefing paper, the Forest Service  concluded that” family forest owners in 40 states of the Southern, Northern, and Pacific regions of the United States suffered an estimated average $266 million per year of losses in fair market timber stumpage value, associated with events that could be considered casualty losses for federal taxes.”  


Briefing Paper by the U.S. Forest Service Southern Station

Introduction: Standing timber can be damaged or destroyed by numerous causes. A subset of those causes can lead to a deductible “casualty loss” for income tax purposes. Casualty losses are those which are “sudden, unexpected, and unusual,” such as fires or storms.

Under federal law, certain types of landowners can deduct the lesser of the fair market value loss or the “basis” in standing timber (essentially, the accumulated cost of the stand establishment and management that has not been deducted in previous years’ taxes). In some cases (such as natural regeneration of forests), basis may be zero, so those landowners cannot deduct anything after a casualty loss. There is current discussion among landowner associations and policy-makers to allow landowners to deduct the greater of the two. To understand the potential impact of the proposed change, it is important to have an estimate of the scale of the issue. It is also important to have a baseline assessment of the value of losses caused by extreme events and disturbances, for future tracking.

Background and Approach: The most current data available in the USDA Forest Service, Forest Inventory and Analysis (FIA) database were used to estimate average annual tree mortality volume and value by cause. Public lands are not affected by income tax rules, and corporate landholdings operate under different tax rules, so estimates of losses were restricted to private, non-corporate (“family”) forest owners. The estimate includes all family forest owners, although owners without a profit motive (“personal-use owners”) can only deduct casualty losses in federally-declared disaster areas.

FIA field crews record the cause of mortality for individual trees, as well as the type of disturbance in the case that a stand suffered >25% mortality due to a discernible event. Estimates were constructed using mortality causes and related disturbances that were most likely to be associated with a casualty loss where mortality volume exceeded 10% at the stand-level. Estimates therefore include mortality causes associated with a disturbance that is sudden, unexpected, and unusual, including: wind, flooding, ice storm, fire, or earth movement (avalanche, landslide, or earthquake). When the cause of mortality was recorded as weather, but no disturbance was indicated, the proportion of mortality due to wind, ice, and flooding was estimated in the same proportion as those cases where a disturbance was indicated within that survey unit and hardwood/softwood type. In cases where a relevant disturbance was indicated but the cause of mortality was silviculture or land clearing, we conservatively estimated a 25% loss in stumpage value due to damage and/or market price reduction in post-disturbance salvage.

The stumpage value for each mortality tree was calculated (tree-volume X price1), depending on tree species, region, and size class. The value was then summarized at the plot level and to regional scales by mortality category. Our estimate includes the 40 states in FIA’s Northern, Southern, and Pacific (excluding AK and HI) regions, over a 6-year period in the North and South, and 10-year period in the Pacific. Because re-measured plots were not available for the Interior West, Alaska, and Hawaii, estimates are not available for those 10 states. Also, only plots that remained in a forest land use over the re-measurement period were considered.

Results: Family forest owners in the Northern, Southern, and Pacific regions of the United States suffer an estimated average $266.3 million per year in fair market timber value losses due to tree mortality caused by events that could be considered casualty losses for tax purposes.

The leading cause of family forest casualty losses nationwide is wind, which generated an estimated $174.6 million in losses, or 66% of the total, followed by flooding (15%), ice (10%), and fire (10%). Earth movement caused negligible losses (<0.1%) for family forest owners as a group.

The region with the largest loss of family forest fair market timber stumpage value associated with casualty losses is the South, with about 76% of the total, or $203.2 million. This is logical since the South has the largest area of family forestlands (140 million acres versus 93 million acres in the North and 11 million acres in the Pacific). Most of the damage in the South was caused by wind, which could include winds associated with hurricanes, tornadoes, or other storms. The Northern region suffered $41.4 million in losses (16%). The leading cause of losses in the North was also wind. The Pacific region suffered $22.9 million in losses (8%). Compared to the North and South, the Pacific has more public lands, which are not included in this estimate. The leading cause of losses in the Pacific was fire..