Guides on how to perform 1031 exchanges with specific types of property or business. Check our 1031 Guide today.

timeline for 1031 exchange

Timeline for 1031 Exchange | How to Set Up a 1031 Exchange with Mineral Rights

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Owning property is one of the best ways to increase your equity and net worth. As some people know, mineral rights can be one of the most valuable assets in your portfolio. For those selling mineral rights, here’s the timeline for 1031 exchange and how to set it up to maximize your investment.

What is a 1031 Exchange?

A 1031 exchange gets its name as it is written in section 1031 of the IRS code.

For those who haven’t had the pleasure of reading the code, it defines a 1031 exchange as the ability to defer capital gains tax on the sale of a property when another “like-kind property” is purchased.

What is a 1031 Like-Kind Exchange Property for Mineral Rights Sales?

So basically, if you sell your mineral rights, you will not have to pay capital gains tax so long as you reinvest in something similar of equal or greater value. In the eyes of the IRS, “like-kind” properties eligible for a 1031 exchange after the sale of mineral rights include:

  • Property
  • Businesses
  • Farms
  • Artwork
  • Livestock
  • Mineral & Water Rights
  • And More.

Qualifications to Use a 1031 Exchange with Mineral Rights

In order to know how to set up a 1031 exchange with mineral rights, there are a few other important aspects of your transactions that must be accurate. Most commonly:

  1. The new property must be under the same taxpayer name as the mineral rights.
  2. After 45 days, the property owner must identify up to 3 potentially like-kind properties, or more than 4 if the total property values do not exceed 200% of the mineral right sale
  3. The new property must be purchased in <180 days after the sale of the mineral rights.

Conclusion

Ultimately, using a 1031 exchange can help you get the most benefit from selling your mineral rights. Just take into consideration the timeline for 1031 exchange. Instead of paying a hefty capital gains tax on the sale of your property’s subsurface, you can reinvest into something new. As you’ve learned from your recent sale, mineral rights can be extremely valuable, so perhaps you will reinvest even more into oil and gas production.

If you have further questions, feel free to reach out to us here.

1031 exchange tax for dummies

1031 Exchange Tax for Dummies: Deferring Capital Gains Taxes on Mineral Rights

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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 tax 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?

So what qualifies for 1031 exchange? In order to qualify for a 1031 exchange to defer capital gains tax, sales of mineral rights must be exchanged. According to the IRS, it should be for a “like-kind” property. This means that you could obviously use your profits to invest in another mineral rights estate, or you could purchase another, similar property such as surface rights or real estate. Other types of property include:
1. Farms
2. Land
3. Businesses
4. Parking Lots
5. And so Much More

So basically, it is possible to 1031 exchange multiple properties as long as it is qualified. You just also need to process the legal 1031 exchange documents needed.

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:
1. Maximize the amount of capital used to invest in new properties
2. Postpone tax payments
3. 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 that can help assist you in maximizing the sale of your mineral rights or royalties.

Again if you have 1031 exchange multiple properties, make sure that you have all the 1031 exchange documents needed. Remember, who and what qualifies for the 1031 exchange are those with knowledge on how it works.

If you learn about this 1031 Exchange tax for Dummies guide, we have more in store for you. Reach out to us here.