"About 44 million acres of privately owned forestland will be sold in the United States over the next 25 years, making private equity investments from groups like Conservation Forestry a critical protection strategy" from The Nature Conservancy 2006 Annual Report. As the need for development increases, the value of land is worth more than the value of the timber. To preserve sensitive habitats from harvesting, privately owned forestland is being purchased to remain sustainable working forests.
Press Release - Nashville, TN - Nov. 8, 2007 - The Nature Conservancy and the State of Tennessee, teaming with two timber companies, have completed the largest land protection deal in Tennessee since the creation of the Great Smoky Mountain National Park.
Is timberland exchangeable for other real property? Yes, just like ranchland, farms, investment lots, tenants-in-common, timberland can be exchanged and the Federal and State capital gain deferred indefinitely or until the replacement property is sold. The steps of a timberland exchange follow the same 1031 exchange guidelines required for forward exchange or reverse exchange.
Can standing timber be exchanged? It depends upon whether the state recognizes timber as real property. Is the right to harvest timber unlimited and perpetual? The sale of standing timber over a limited period of time, viewed as a carve out, has been disallowed by the IRS in a 1953 tax court case known as the Oregon Lumber Company where the timber right was a thinly disguised timber sale contract. In TAM 9525002, the IRS also disallowed the sale of timber as an exchange.
Perpetual timber rights to harvest unlimited standing timber are similar to water and mineral rights classified as real property rights. A deed for timber must be conveyed, not a contract and bill of sale. There cannot be a pre established cutting contract or the timber can be considered personal property which is not "like kind" to real property. In many state's it is possible to separate the timber interest from the title to the land. A timber deed and a land deed can be exchanged independently for a simple fee interest in real property. A 1031 exchange allows the conversion of a timber deed to real property while retaining ownership of the original land.
A thirty year leasehold timber rights, including the right to extract timber or an outright grant of timber rights can be exchanged for other real property. Each exchange must be reviewed on a case-by-case basis. Seek the advice of your Attorney or Accountant and a Qualified Intermediary who can structure your exchange in a manner consistent with Internal Revenue Code ยง1031.
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