Sale of Forest Products Other than Standing Timber
Proceeds from the sale of forest products other than standing timber is treated as ordinary income. This includes logs, lumber, pulpwood, poles, mine timbers, maple syrup, nuts, bark, Christmas greens, and nursery stock.
Gains from the sale of limbs and tops that are left after logging are also ordinary income, even if the timber was subject to a Section 631(a) election. However, if the original contract allows the buyer to produce products from the tops and limbs of the trees, and this value is reflected in the contract price, then the entire amount received may qualify for capital gains treatment.
An exception to the general rule is the lump-sum sale of tree stumps from cutover land acquired for investment, you may be entitled to treat any gain from the sale as a capital gain (Rev. Ruling 57-9). However, you must sell the stumps on the property at one time. This does not include the sale of tree stumps by timber operators after the harvesting of the merchantable timber.
Payments received as rent for hunting or other recreation activities is ordinary income. Rental payments clearly designated for use of the land itself for the production of timber under a long-term agreement are ordinary income.
Reporting Income and Expenses
If you were not in a trade or business and sold forest products other than standing timber the income from the sale is reported as "other income" on the front of IRS Form 1040. The expenses from the sale are reported as "miscellaneous itemized deductions" on Form 1040, schedule A.
If you were in a trade or business the income and expenses from the sale would be reported on the appropriate business form (s).
Sole Proprietorship: Form 1040 Schedule C
Partnership: Form 1065
S-Corporation: Form 1120S
C-Corporation: Form 1120