1031 Exchange Services

1031 Exchanges of Timberland and/or Timber

The disposition or sale of timberland and unsevered timber can qualify for 1031 Exchange treatment when like-kind replacement timberland, unsevered timber or other property is acquired as part of an integrated 1031 exchange transaction.

Timberland and Unsevered Timber are Real Property

Timberland and unsevered timber, also called standing timber or stumpage, are considered to be real property for 1031 Exchange purposes.  The right to cut and remove standing timber under the provisions of a timber deed or cutting contract is classified as a contractual right or other personal property in most states.  Timber that has already been cut and removed would also be classified as personal property.

State Law Determines Property Classification

However, some differences do exist between states regarding the classification of timber contracts as real or personal property.  State law determines the legal classification of whether property is considered to be real or personal, so it is necessary to consult with your legal counsel prior to completing any 1031 Exchange transaction.

Qualified Use Property and Intent to Hold Issues

To qualify for 1031 Exchange treatment, you must have held the timberland and timber for investment or use in your trade or business, and you must have the intent to hold the like-kind replacement timberland and timber for investment or use in your trade or business.  Timberland and timber not held for investment or use in your trade or business will not be considered qualified use property and will technically not qualify for 1031 Exchange treatment.

Thus, timber considered to be held primarily for sale would not qualify if exchanged separately from the land. However, such timber would qualify if it is 1031 exchanged as part of the land.  In such cases the timber is classified as an unharvested crop exchanged with the land.


Timber related 1031 Exchanges that qualify for tax-deferred exchange treatment include: timberland containing all old growth timber exchanged for timberland containing second growth timber (Revenue Ruling 72-515); timberland for bare land (Revenue Ruling 78-163); timberland for real estate in a city; undeveloped ranch land for a commercial building; a tree farm in one state for timberlands in another state; timberland with reservation of cutting rights for state owned timberland of lesser value (Revenue Ruling 76-253); timber cutting rights on one tract for timber cutting rights on another tract, timberland and perpetual timber cutting rights (classified as real property under state law) for other timberland; and timberland held by a testamentary trusts for timberland held by an inter vivos trust.

Examples of timber related exchanges that did not qualify for nonrecognition as like kind exchanges include: timber held primarily for sale for timberland; right to cut timber on taxpayer’s land for other timberland; and sale of timberland for cash and subsequent purchase of other timberland.


back to top