Selling mineral rights or royalties is a great way to cash in on an extremely valuable asset. Whenever you choose to sell your mineral interests, however, the huge influx of cash is subject to a hefty capital gains tax. In order to maximize your earnings, read this “1031 exchange for dummies” guide and you can defer the capital gains taxes on your sale with a 1031 exchange for another qualifying property.
What Kinds of Property Qualify for a Mineral Rights Exchange?
According to the IRS, in order to qualify for a 1031 exchange to defer capital gains tax, sales of mineral rights must be exchanged for a “like-kind” property. This means that you could obviously use your profits to invest into another mineral rights estate, or you could purchase another, similar property such as surface rights or real estate. Other types of property include:
● Parking Lots
● And so Much More
Avoiding Paying Capital Gains Taxes on Lesser Property
If you are using a 1031 Exchange to purchase new property with the sale of your mineral rights or royalties, it is important to note that the new property must be of equal or greater value to the sale of your mineral rights or royalties. If you choose to buy something of lesser value, the difference will be calculated and taxed.
The Benefits of a 1031 Exchange
Over $50 billion worth of property utilizes a 1031 exchange each year, but why? Well, by deferring capital gains taxes, 1031 exchange users are able to:
● Maximize the amount of capital used to invest in new properties
● Postpone tax payments
● Diversify their portfolios without taxation
How to Begin a 1031 Exchange for your Mineral Royalties
A Qualified Intermediary is necessary for negotiating a 1031 exchange and the process can be grueling. Ranger Minerals have a team of representatives that are well versed in 1031 exchanges can help assist you in maximizing the sale of your mineral rights or royalties.