The information provided on this page is for general informational purposes only and does not constitute legal, financial, or investment advice. Oil and gas laws, mineral rights regulations, and royalty structures vary significantly by state and jurisdiction. While we strive to provide accurate and up-to-date information, no guarantee is made to that effect, and laws may have changed since publication.
You should consult with a licensed attorney specializing in oil and gas law in your jurisdiction, a qualified financial advisor, or other appropriate professionals before making any decisions based on this material. Neither the author nor the publisher assumes any liability for actions taken in reliance upon the information contained herein.
Condominiums, or simply “condos,” are a great way to purchase property to live in, rent out, or resell. Sort of halfway between an apartment and a home, condominiums make for a great living situation for many people.
With that, the sale of a condo is likely to flood former owners with a large sum of cash. For first-time flippers and experienced investors, using a 1031 exchange is a great way to get the most out of your sale with a smart reinvestment.
In this article we will detail everything there is to know about 1031 exchange condominiums, and why mineral rights and royalties are the perfect property upgrade.
How to Sell A Condominium
Do you remember when you bought your condominium? It was pretty easy, right?
Well, good news, selling a condominium is usually just as simple. Although we’ve all heard our fair share of property nightmare stories, condominium real estate exchanges are usually fairly straightforward and easy to navigate.
So long as there is buyers’ interest, condos can be sellable in just about every way imaginable. Most commonly, this includes:
- Hiring a Realtor to Market the Home
- Selling By Owner
- Yard Signs
- Online Listings
- Newspaper Ads
- Word of Mouth, etc.
- Reselling to the Builder
- Gifting or Bequeathing to Friends and Family
Determining the Value of Your Condominium
The great thing about condominiums is that there are so many similar properties surrounding each and every one of them. Finding the value of your condominium may be as easy as knocking on your new neighbor’s door and asking how much they paid.
Of course, condominium value is also impacted by many individual variables including:
- Number of Previous Owners
- Pet History
- General Condition
- Appliance Upgrades
- Number of Units
- Community Amenities
- Market Fluctuation
- And more
In general, condominiums follow normal real estate market trends. In booming areas, value can fluctuate just as in cities with lowering populations. For long-term owners, a condominium is usually sold at a similar or greater price than it was purchased.
Taxes Paid on the Selling Condominiums
Even if you are selling your condo without the help of a realtor, accountant, or broker, you will still have to pay taxes on the money earned from the sale. Although the percentage of the gross amount varies by region, state, and city, most people pay the following on the sale of a condominium:
- Capital Gains Taxes
- Federal Income Taxes
- Sales Taxes
- Local Taxes
- And More
Although most people say that the only two things that are certain in life are death and takes, it is possible to avoid some taxation with smart money management. You may not be cheating death, but a 1031 exchange can be used to reinvest the money from the sale of a condominium into another profitable property.
In doing so, you can eliminate all of the Capital Gains Taxes that you would have otherwise paid to the IRS that calendar year.
1031 Exchange Condominiums
1031 exchanging condominiums is very easy. However, it does take a considerable amount of effort and careful attention to detail.
If you would rather save time and possibly earn more on a 1031 exchange investment, there are many industry experts available to help identify similar properties, meet deadlines, and process legal documents.
Condominium Like-Kind Properties
First and foremost, a 1031 exchange gets its name from the requirement to “trade” a condominium sale for another property. The IRS permits most other land-based properties as “like-kind,” including:
- Mineral Rights and Royalties
- Parking Lots
- Shopping Centers
- Trailer Parks
- Water and Ditch Rights
- Apartments
- Homes
- Farmland
- And More
1031 Condominium Exchange – Timeline
To start, you have 45 days to identify at least one reasonable like-kind property from the sale of your condo. By reasonable, the law dictates that it should be not only like kind, but also of similar or greater value.
1031 exchange qualification expires after 180 days if a new property is not purchased. After 180 days, capital gains taxes are no longer withheld from the sale of the condominium. A maximum of 3 like-kind properties can be identified without having to factor in their value.
For additional requirements, please see our 1031 Exchange Rules and Requirements Page.
What to 1031 Exchange Condominiums For
Mineral rights are the total or partial ownership of the subsurface of a plot of land. In the United States, they are available to purchase just as any other property like condos, farms, and homes.
If your dreams of renting the condo out to paying tenants have not matched your expectations, mineral rights are another great way to earn monthly income from owning property.
Each month, leased oil and gas companies are able to extract, process, and sell oil and gas from the mineral rights property that you own. In most cases, you may never even see the operation, however, a monthly oil and gas royalty check will be paid to your name as a fixed percentage of the resource sales.
How to Maximize Your 1031 Condominium Exchange
If you’ve spent too much time in your condo in the city, mineral rights may be a new concept for your investment portfolio. However, states like Texas, Colorado, Pennsylvania, and more contain highly valued mineral rights properties that are both active and waiting for resource extraction.
Mineral rights are valued on their estimated remaining reserve capacity as well as the percentage ownership as granted by the contract.
Conclusion
If you’re selling your condo, consider using a 1031 condominium exchange to purchase mineral rights and oil and gas royalties. In doing so, your reinvestment will not only eliminate capital gains taxes (potentially $1,000’s of dollars) but may also lead to steady monthly income from the sale of natural resources.
