The quantity of timber destroyed must be established. This requires substantiation by a person familiar with the measurement of timber such as a consulting forester. The deduction is generally claimed for the tax year in which the casualty occurs. The deduction claimed should reflect any offsetting compensation even though the compensation may not have been actually received as of the filing date. Adjustments can be made in later tax returns for differences between anticipated and actual compensation.
Excess compensation is included as income for the year in which it is received.
Costs have been allocated to these accounts. These costs have not been transferred to a merchantable timber account. The basis of unmerchantable timber destroyed is computed by dividing the total cost shown in the account by the number of acres of growth and multiplying this amount by the number of acres destroyed. Casualty losses are reported on IRS Form 4684. If the timber is a partial loss and there is salvage income, then the gain or loss is determined as in a timber sale.