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Originally Posted by whell
The tree is capital as since it can be argued that the value is increased by human labor in this example. Also in this example, the tree is the "raw material". Raw materials are capital.
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Per this U Penn discussion, you are correct from an accounting and tax perspective, but by accounting definition, not due to human labor input.
Per classic economic theory, standing timber still does not seem to me to fit the idea of 'capital.' Stockpiled cut logs would be capital.
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Land, timber, and equipment are the basic capital accounts usually maintained in forest operations. Assets placed in the land account include the land itself, nondepreciable land improvements, and depreciable land improvements. Because neither the land account nor the equipment account has elements unique to forest ownership, this discussion will focus on the timber account.
Timber has had long-term capital gains treatment under the Internal Revenue Code (IRC) since 1944. The Taxpayer Relief Act of 1997 substantially lowered maximum long-term capital gain rates from 28 percent to 20 percent. Under the Act, the rate is scheduled to drop further, to 18 percent for assets purchased and held five years beyond December 31, 2000. There are several major reasons for forestland owners to ensure that their timber sale proceeds qualify for capital gains status:
The maximum tax rate for long-term capital gains is only about half the maximum rate for ordinary income (20% versus 39.6%).
If taxpayers have a large capital loss, they can use it to offset a maximum of $3,000 of ordinary income. However, a large capital loss can be applied against any amount of capital gains.
Capital gains are not subject to the 15.3 percent self-employment tax on income realized from a trade or business (12.4% social security tax on income up to $72,600 for 1999, plus 2.9% medicare tax on all income). Taxpayers who materially participate in their forest enterprise may fall within this circumstance (see page 7).
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http://extension.psu.edu/natural-res...estland-owners