1031 Exchange And Timber

[JAinNC]

Need your wisdom. Client is going to buy a residential rental house for investment. Will timber cut from his land that he has held for investment qualify as 1031? I think not because it is not like-kind. I need other opinions.

[abby]

a link that may be useful

http://www.exeterco.com/article_1031_exchange_of_timberland_timber.aspx

[JAinNC]

Thanks Abby

That was helpful. In NC we do have timber deeds that are reported on 1099S. But I am not sure if the 1099 S is enough to deem this as qualifying as real for 1031 purposes.
I have left a message with an attorney to call me.
Any North Carolina 1031 experts out there?

Thanks
Jeannie

[JAinNC]

Attorney says yes

.... timber does qualify in NC for 1031 exchange. He gave me the name and number of a company they deal with in NC. I will call them before I call my client back.

[JAinNC]

Well I called

.. and there legal council for 1031 exchanges said NO. There maybe companies who do it in NC but IRS has ruled agianst them when caught.

End of this story.

[JON]

IRS legal council

how did you get to talk to them? Is there someway of contacting them? I thought in today's IRS if you wanted an expert opinion from them you were going to have to pay for it in the form of a Private Letter Ruling. Give us that MAGIC telephone number....

Thank You.

[Davc]

BNA doesn't think so:

It will be problematic to transfer timber rights for fee real estate and claim an exchange under §1031 has resulted. Oregon Lumber Co. v. Comr.,620 is the leading case addressing whether timber rights are like kind to fee real estate. The court first sought to characterize the timber rights under Oregon law and found that the timber right was one for immediate harvest, without any agreement for the accompanying long-term beneficial use of the soil, and accordingly, the timber right was personalty. However, the court went on to observe that even if Oregon law would have characterized the timber right as a real property right, not all rights characterized as real property under state law are automatically like kind to real property for federal tax purposes. The right to enter, cut and remove timber was, according to the court, ultimately a transitory right and is more in the utilization of land rather than being land ownership. Although the court in Oregon Lumber stopped short of resting its decision on this ground, it appears the Tax Court would have ruled that the timber right involved would not have been like kind to fee real estate even if the state of Oregon would have characterized the timber right as one involving real property.


Note: Until further authorities621 emerge, taxpayers should anticipate that the IRS will assert that an exchange of timber harvest rights for fee real estate does not qualify as like kind under §1031.

[JAinNC]

Jon

No - I called the legal council for the company to whom the attorney had referred me.

[wexeter]

1031 Exchange of Timberland

I'm guessing from the original post that the client will be cutting and then selling the cut timber. The timber is personal property once it has been cut and will not qualify for 1031 exchange treatment. In addition, any contract for timber is also personal property and would not qualify for 1031 exchange treatment.