OAR 150-317-0430: Modification of Federal Taxable Income: Timber Cut but Unsold

(1) For federal tax purposes, a taxpayer may elect under Section 631(a) of the Internal Revenue Code to treat the cutting of timber as a sale or exchange of such timber, even if it remains unsold at the end of the tax year. For Oregon tax purposes, the gain is not included in income until the actual sale takes place. (2) The gain from the sale or cutting of timber that is included as capital gain income for federal tax purposes under IRC 631(a) does not automatically qualify as capital gain income for Oregon tax purposes. Gain from the sale or cutting of timber not qualifying as capital assets under IRC 1221 shall not be used to offset capital losses. However, such gain may be used as an offset to ordinary losses. (3) In order to modify federal taxable income to reverse the effects of IRC Section 631(a), the taxpayer must compare the amount of Section 631(a) gain in beginning and ending inventory. If the amount of such gain in ending inventory exceeds the amount in beginning inventory, the difference is subtracted from federal taxable income. If the amount of Section 631(a) gain in beginning inventory exceeds the amount in ending inventory, the difference must be added to federal taxable income in arriving at Oregon taxable income. [Publications: Publications referenced are available from the agency.]