Tax considerations for natural disasters

What kinds of events qualify for casualty loss treatment?

The disaster must be an identifiable event that results in sudden loss and is both unusual and unexpected. (Hurricanes, ice storms, tornadoes and fire all qualify.)

Is the damaged or destroyed property for personal use (home, household goods, personal vehicle)?

• If yes, in order to be able to deduct the loss, it must be a federally declared disaster area.
• If no declaration, there is no deduction for any loss.

How is the loss determined?

• Your loss is the lesser of the following: the decrease in fair market value or the adjusted basis.
• For personal property in a federally declared disaster area, take the above amount, subtract $100 and then reduce it by 10% of adjusted gross income.
• Loss is calculated on the recordkeeping unit (for many, that is by stand or by tract or property).
• The deduction is normally taken in the year of loss, but may go back one year in federal disaster areas.
• You must take into account any amount received for salvage or from insurance. (These will reduce the loss).

What if I harvest timber and sell it for salvage?

• If you receive more than the adjusted basis, it may result in a gain.
• The gain may be deferred for two years by purchasing appropriate replacement property.
• Any revenue from salvage of timber will be reported as timber sale income.

If I receive cost-share money to help with reforestation, do I need to report that?

• Cost-share funds may be available through the Natural Resource Conservation Service or the Farm Service Agency.
• Taxpayers may be able to exclude all or part of cost-share funds from income (see cost-share exclusion or section 126 exclusion for the formula).

How are reforestation costs taken into account once I have harvested or cleaned up?

• Funds spent on site preparation or planting up to $10,000 in a tax year on a unit may be deducted in the year of expense (section 194).
• Amounts above $10,000 may be deducted in the following seven tax years, resulting in a complete deduction of reforestation expenses by year 8.
• This is an election and must be made on the tax return for the year of expense.

How will this impact my Oregon property taxes?

• If you are in the Small Tract Forestland Option, any harvest of timber will trigger the severance tax. If you don’t know whether you are in Small Tract, ask your county assessor.
• The Oregon Forest Practices Act requires reforestation and a minimum stocking level. If you harvest, you are required to reforest. Any questions should be directed to your local Oregon Department of Forestry Stewardship Forester. Failure to stay in compliance with reforestation or stocking requirements may result in penalties and removal from the forestland property tax program.