How to 1031 Exchange Communication Towers into Mineral Rights & Royalties
Communication towers have been a part of our society for over a century. They’ve changed shape, size, and function over the years. From radio to television to internet and phone networks, communication towers are a strong asset in the information age. Let’s talk more about 1031 Exchange Communication Towers below.
For the most part, communication towers are generally leaseable to companies. These are companies that provide network services or individual portrayers of radio or other media. Leasing is a great option to maintain ownership of your tower. Oftentimes, companies wanting to secure their assets will buy communication towers for large amounts of money.
Unfortunately, a huge amount of cash usually comes to a large portion of the sale. Most are payable to taxes.
Thankfully, capital gains taxes from the sale of a communication tower are avoidable. A 1031 exchange is useable to purchase a new like-kind asset.
In this article, we will break down the steps in selling a communication tower and transferring the capital to a new asset with a 1031 exchange. Today, few portfolio assets are stronger than mineral rights, which we will showcase as a great option for reinvesting to both avoid capital gains taxes and secure a strong financial future.
How to Sell a Communication Tower
First things first, to use a 1031 exchange you must sell your communication tower. Unfortunately, communication towers are not as easy to sell as secondhand clothes or records. Rather there is a limitation on the pool of potential investors for personal use. With that, communication towers are highly desirable assets, so beware of lowballing deals for opportunists looking to leverage their networks for a quick resell.
Thankfully, there are a few local, regional, and national broker organizations that specifically work with communication towers. If you’re looking for a fast, efficient, and fair sale without putting in much time or effort, we recommend working with capital advisors who have experience with communication tower sales.
Determining the Value of Your Communication Towers
Now before you hand your tower over to another investor or company, it is important to have a rough understanding of its value. While you may have been leasing the communication systems to a company, the outright sale of a tower can be well beyond 15 times that of the monthly rent. While every sale is different, the value of most communication towers is assessed on a few key attributes. These include:
- Layout and design of the site
- Type of tower, materials, and supports
- Equipment technology (owned vs leased)
- Lighting, buildings, and other onsite features
- And more
Communication towers are now in demand more than ever before. Whereas many speculate that towers will ultimately be replaced by satellites, there is still a large and growing demand for cellular towers all across the globe.
Taxes Paid on the Selling Communication Towers
As we mentioned earlier, big sales generally come with large taxations. Communication towers are no different, as huge sales to brokers and large corporations warrant deals susceptible to significant amounts of capital being taxed at the time of the deal. Depending on the location, the following are generally taken from the outright sale of a communication tower.
- Sales Taxes
- Federal Income Taxes
- Capital Gains Taxes
- Local Taxes
- And More
With all of this added up, taxpayers can expect to lose over 30% of their communication tower sales to local and federal governments. Of course, some of this can be deferred, as capital gains taxes can be avoided with a 1031 exchange.
Selling Communication Towers with a 1031 Exchange
A 1031 exchange (also known as a section 1031 exchange) is an IRS procedure that allows for the total elimination of capital gains taxes on the sale of a communication tower. In order to be completed, the same taxpayer must purchase a new property asset to replace the communication tower in a virtual “trade” or “exchange.” If the new property is of the same or greater value than the communication tower, then all of the capital gains taxes that would have otherwise been paid can be completely deferred.
Communication Towers Like-Kind Properties
The IRS has defined “like-kind” properties rather loosely so that investors can replace communication towers with many other forms of personal property. In fact, if you sell your cell tower, you can replace it without having to pay capital gains taxes for any of the following:
- Mineral Rights and Royalties
- Water and Ditch Rights
- Apartment Buildings
- And much more
Communication Towers 1031 Exchange Timeline
Once a communication tower is sellable, then taxpayers can begin to identify properties eligible for the 1031 exchange. In total, up to 3 portraits can be identified regardless of their value. First, one must be identified within 45 days of the sale. After that, the exchanger then has the rest of the 180 after-sale periods to successfully purchase one of the new properties.
1031 Exchange Intermediaries for Selling A Communication Tower
As with any governmental procedure, there is extreme attention to detail required to successfully complete a 1031 exchange. With the help of a specialized intermediary, taxpayers can avoid the hassle of tireless paperwork, property identification, and more. Meeting deadlines is essential here. Eligibility is completely resolvable after 6 months.
Why Purchase Mineral Rights?
Investors can reroute their money anywhere. The sale of a communication tower is expandable with a savvy reinvestment. Here in the United States, individuals have permission to own mineral rights. This is now leasable to oil and gas companies. With this, mineral royalty checks is a reward to mineral rights owners. It is a permanent percentage share of the monthly resource sales on the property.
Communication towers, primarily used for cell phone networks, are an important and necessary part of today’s society with significant red tape and barriers to entry. With that in mind, functional towers are sellable for enormous profit margins. In the United States, mineral rights are a sound reinvestment with a 1031 exchange for both deferring capital gains taxes and establishing a future income stream.
If you have further questions about 1031 Exchange Communication Towers, feel free to reach out to us here.
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