As demonstrated by the following hypothetical example, the typical effect of an election under Code Section 631(a) with respect to timber harvesting activities is to produce gain, taxable at capital gains rates by virtue of application of Code Section 1231, and an ordinary loss attributable to the timber management and harvesting activities. Given the differential tax rates that apply to these two broad categories of income or loss, their aggregate impact produces a tax benefit, even though the enterprise generated profit for the year.
|
|
Pope Res
Aggregate
Amounts
Reported
|
A
Per
Unit
Amounts
|
B
Applicable
Tax
Rate
|
Resultant
Tax(Liab)/
Benefit
(A times-B)
|
Tax "Yield" at Various Unit Prices
$15.00 $20.00 $25.00 $30.00 $35.00
|
|
K-1 taxable income
|
7,100,000
-------------
|
$ 1.53
----------
|
|
|
|
1231 gain
|
14,000,000
|
$ 3.01
|
15.0%
|
$ (0.45)
|
|
|
|
Long-term capital gain
|
2,500,000
|
0.54
|
15.0%
|
(0.08)
|
|
|
Interest income
|
300,000
|
0.06
|
35.0%
|
(0.02)
|
|
|
Ordinary loss
|
(9,700,000)
|
(2.09)
|
35.0%
|
0.73
|
|
|
Taxable income
|
7,100,000
-------------
|
$ 1.53
----------
|
|
$ 0.18
-----------
|
1.2% 0.9% 0.7% 0.6% 0.5%
|
Note: Income amounts provided are representative examples only and should not be interpreted as pro forma results. As such, the amounts shown in this worksheet represent management's estimates based on general tax principles. Individual tax consequences will vary from investor to investor, and you should consult with your own tax advisor about the specific tax consequences in light of your own investment and income profile.
