Timber and tree owners were hit especially hard by several hurricanes and other U.S. disasters during 2004. The good news is, trees damaged last year by fire or storm may entitle the owner to a federal tax deduction in the form of a "casualty loss". This includes losses to both timber and shade trees.
Casualty losses occur when sudden, unexpected and unusual events damage your trees. The first step toward claiming that loss is to document the damage. Take pictures to show the actual property damage before cleanup efforts begin. In most cases you have until April 15, 2005 to report a "casualty loss" of the 2004 damage.
A timber owner has to have made an honest attempt to salvage the damaged timber and accepted any price, even if forced to sell at a lower tree grade. If no buyer can be found, proof of any or all refusals should be documented. So, in theory, if a timber owner has documented the damage and attempted a sale, he/she may deduct all or part of the resulting "loss".
Timber losses may be deducted up to the "adjusted basis" but not on the fair market value. That basis is generally what you originally paid for the timber plus any planting costs. The deduction cannot exceed that adjusted basis. Remember, you should find a registered forester to assess the tree or timber damage.
One cruel fact still remains. The deduction is based, not on timber's fair market value but on your adjusted basis. Many, if not most, owners of timber have a very small basis because the property was purchased decades ago or the timber naturally reseeded or the basis has already been depleted. If your basis is determined to be zero then your loss deduction will be zero. File the deduction on IRS Form 4684, Section B to report the loss.