Capital Gains Determination
Timber held as part of a Trade or Business, sold under a lump-sum sale
The holding period for a lump-sum contract runs from the date the timber was acquired to the date the sale contract is executed, usually the date it is signed. The timing of payments is not relevant to this determination. However, payments under a lump sum contract are reported in the tax year they are received.
If you held the timber for more than one year:
Timber held as part of a trade or business for more than one year, sold as a lump-sum sale would qualify for long-term capital gains treatment. The gain is reported on Part I of Form 4797, Sale of Business Property, along with any other Section 1231 transactions. The gains and losses from Section 1231 transactions are netted and then transferred to the appropriate business form. The gain can be determined by completing Form T, Part III.
If you held the timber for less than one year:
Timber held as part of a trade or business for less than one year, sold as a lump-sum sale is treated as ordinary income. The gain is reported on the appropriate business form.