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Federal Tax Law Research Papers

The Treatment of Trees: Like-Kind Exchanges of Timber Rights

September 14, 2017
Timber, logging and forest picture by Photo by Ales Krivec on Unsplash

A new research paper by Brooklyn Law School professor Bradley T. Borden looks at the treatment of like-kind exchanges of timber rights.

In general, timber rights do not qualify for Section 1031 recognition, which allows for the postponement of tax on property sales if the proceeds are reinvested in similar property as part of a qualifying like-kind exchange. 

Although Borden presents a good overview of the current state of law regarding like-kind exchanges of timber, one open question is whether a right to harvest timber can be like-kind to a general interest in real property, if the right extends for a long enough period of time.

The courts and the IRS haven’t addressed this question yet, but existing authority suggests that (at a minimum) the right would have to extend long enough to provide the holder the right to harvest future tree growth.

Here’s the full abstract:

“The exchange of timber rights is a niche area of the law, but issues related to such exchanges arise from time to time in various practices. Keeping track of the cases and rulings that have considered the tax consequences of exchange timber rights can be difficult. This article reviews those authorities and summarizes the state of law regarding like-kind exchanges of timber rights. The article shows that courts and the IRS do not treat rights to remove standing timber as like kind to other real property interests, so exchanges of such property do not qualify for section 1031 nonrecognition. Rights in standing timber may, however, be like kind to other rights in standing timber, and interests in real property that includes standing timber can be like kind to other real property. The general principles derived from the existing body of law should provide fairly clear guidance for taxpayers and their advisors who are considering the tax consequences of transfers or acquisitions of timber rights.”

Full paper: Borden, Bradley T., Like-Kind Exchanges of Timber Rights (September 12, 2017). Journal of Passthrough Entities, Vol. 20, Pg. 27, 2017; Brooklyn Law School, Legal Studies Paper No. 522.

Photo by Ales Krivec.

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