Timber REITs: Isn’t All Income “Good”? No.

13 09 2011

If you invest, isn’t all income “good”?  Not according to the IRS when it comes to real estate investment trusts (REITs).  Generally, 95% of a REIT’s gross income must be derived from rents from real property, aka “good income.”  For timberland-owning REITs, the selling of timber qualifies as good income.  What else qualifies?

One area of interest from clients has been mineral income. Timber REITs actively manage mineral, oil and gas leases on their land. Mineral royalty income is considered qualified REIT income for the 95% income test.  Timber REITs must still earn 75% of its income from real estate, including sales of timber and timberland, rents of real property and mortgage interest from secured property.

How big are the dollars?  Weyerhaeuser (WY) owns 7.1 million net mineral acres; revenue from mineral, oil and gas totaled $60 million during FY 2010.

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