Determining the Taxable Basis of your timber stands is more important than many landowners understand. Current tax law allows most timber sale income to qualify for long-term capital gains treatment. The tax liability for a qualified timber sale is calculated by deducting the cost basis of the timber stand being sold from the net value received from the sale of that stand. This calculated value (or gain) is then multiplied by the applicable tax rate to determine the taxes owned. The tax that a timberland owner pays can be significantly reduced with proper establishment and documentation of your tax basis.