Sale of lumber reported on 1099-MISC

Assuming you are not in the business of growing and selling timber, then you have investment property and the sale of the timber is the sale of a capital asset. As you noted, it should not have been reported to you in Box 7 of the 1099. If you can't get a corrected copy, I recommend the following:

1. Enter the mount on the 1040 Line 21 to account for the 1099.
2. Enter on Line 21 the same amount as a negative number. Identify the transaction as Sale of Timber See Form 8949
3. Enter the transaction (sale of Timber) on Form 8949. Code it as an F (Long-term no 1099-B received).

If you get a letter from the IRS (CP2000 Notice), just respond in a timely manner and explain what happened. Send the reply to the IRS address listed in the letter.

A friend of mine has another recommendation:

Enter the amount on Schedule C as if it was self-employment income. Enter as Other Expenses the same amount. This makes the net equal zero. Then follow my original reply to add the amount on the 8949. Personally, I don't like to create Schedule Cs when there is no self-employment income.

Interesting issue with ln. 21 entered as a negative number. That would take care of the 1099-MISC. I considered sending an attachment to describe the incorrect reporting, but maybe waiting to see if a response from the IRS might be better.

Thanks for confirming the investment aspect as I'm not in the logging business.

Thanks Alan.

How do you enter two numbers (one positive and one negative) on line 21? Do you mean in the left hand comment line, with the actual number on line 21 right column being zero?

A friend of mine has another recommendation:

Enter the amount on Schedule C as if it was self-employment income. Enter as Other Expenses the same amount. This makes the net equal zero. Then follow my original reply to add the amount on the 8949. Personally, I don't like to create Schedule Cs when there is no self-employment income. ==================== Reporting on Schedule C is correct. Don't forget that there's a DEPLETION deduction here too. The sale of timber is akin to the sale of oil, gas, or minerals. Schedule D treatment is incorrect.

I believe the more common approach for the casual timber harvest is to treat it as a Schedule D sale:

Electing to treat the cutting of timber as a sale or exchange. You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. You must make the election on your income tax return for the tax year to which it applies. If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. You generally report the gain as long-term capital gain. The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. (Pub. 535)

Sch C is wrong - I'm not in the lumber business. I don't see why Sch. D treatment is incorrect. Pub. 544,Chap. 2. - 'Capital Assets' says '... The following items are examples of capital assets ... Timber grown on your home property or investment property, even if you make casual sales of the timber.'

As a married couple filing jointly with income under $73,800, long-term capital assets have a 0% tax rate, so Depletion is mute whether it's taken or not, the 0% remains the same.

The problem is that this income was reported on a 1099-MISC instead of a

I'm leaning towards Sch D with 8949 and attaching a letter explaining why I'm treating the income that way along with a copy of the 1099-MISC. I don't believe there is a safer way to defuse the 1099-MISC.

The proper treatment is Schedule D as this person is not in the timber business. The reason my friend recommended putting it on the Schedule C even though there was no business, was to account for the fact that the payment was in Box 7 of the 1099. He said if you put it on the Schedule C and force the expense to the same amount, you have told the IRS computer that Box 7 monies have been reported and the profit is zero. Then, you also put it on the Schedule D, which is the proper treatment.