This subtraction is called basis recovery and can reduce taxes significantly. Basis recovery usually occurs when property is sold. But basis can also be recovered when property is lost in a casualty, as in a fire or storm. Land and timber are properties that can be bought and sold separately. Therefore, it will be to your advantage to set up different accounts for land and timber and keep separate record of basis.
Inflation reduces the value of basis every year.
To minimize this financial loss, you need to be aggressive in using basis recovery. The way you acquire property is important in establishing the initial value of basis. This acquisition determines your first entry for basis in the land account or the timber account. You inherit property. You receive property as a gift.