How to 1031 Exchange Hospital Equipment into Mineral Rights & Royalties

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Hospital-Equipment

Hospital equipment can be very expensive, as the business of saving lives does not come cheap. Whether you are operating a hospital, urgent care center, or clinic (or simply have some high-powered devices at home for your own needs), selling hospital equipment can actually lead to tremendous financial gain.

In fact, price tags on hospital equipment sales are often large enough to warrant a capital gains tax be levied as a fixed percentage of the final dollar amount. In order to avoid paying these taxes, a 1031 exchange can be used to “trade” any piece (or multiple pieces) of medical equipment for a new property, capital gains tax-free.

In this article, we will outline the steps necessary to complete a successful 1031 exchange when selling hospital equipment. Beyond this, we will make the case for mineral rights and royalties as one of the strongest possible ways to reinvest your finances.

How to Sell Your Hospital Equipment

Just like in homes and apartment buildings, there are also dedicated websites and resources for selling hospital equipment such as medibid.com, medwow.com, and more. Here, medical equipment can be bought and sold in both large and small quantities, from hospital beds to individual syringes and tests.

In most cases, it is much easier to sell used hospital equipment to individual buyers looking to bring service into their own homes. This is largely because hospitals are very particular about the equipment they source and use. With that said, underfunded hospitals around the world may be forced to purchase used equipment, so long as it is still functioning properly and safely.

Determining the Value of Your Hospital Equipment

With such a wide range of different kinds of hospital equipment, it is tough to give an overall estimate of how much any given property will sell for. Instead, hospital equipment is almost always priced by piece, with the final sale price as an accumulation of each part’s value. The easiest way to determine the value of your medical equipment is to check current market listings. While undervaluing your property may lead to a quicker sale, medical equipment is always going to be necessary and retains its value very well.

Taxes Paid on the Selling Hospital Equipment

Unless you are trading bandaids for cold hard cash, professional exchanges of hospital equipment for real income often lead to considerable taxation. In the United States, medical equipment sales are generally subject to:

  • Federal Income Taxes
  • State Income Taxes
  • Depreciation Recapture
  • Sales Taxes
  • Local Taxes
  • And More

Of course, with large hospital equipment sales, capital gains taxes may also be applied to those earning a considerable income from the transaction. If capital gains taxes are applied on the sale of your medical equipment, some or all of the cost can be avoided when making use of a 1031 exchange.

Selling Hospital Equipment with a 1031 Exchange

With a 1031 exchange, hospital equipment can be sold and “traded” for a new property in order to defer capital gains taxes. By reinvesting your money in a new asset, the IRS allows 1031 exchanges to be completed by the same taxpayer, saving considerable amounts of capital on taxes otherwise paid.

Hospital Equipment Like Kind Properties

Under the IRS code, hospital equipment is considered to be personal property that serves a function for both businesses and individuals. With this wide spectrum of consideration in mind, hospital equipment can be considered “like-kind” properties to a number of different assets.

While hospital equipment cannot be exchanged for everything on the open market, the IRS considers the following “like-kind properties” eligible for a 1031 exchange:

  • Artwork
  • Collectibles
  • Leasing Portfolios
  • Water and Ditch Rights
  • Mineral Rights and Royalties
  • And more

Beyond this, hospital equipment can also be exchanged for single-family homes or apartments. Although most private sellers are not selling hospital equipment at such high values, it is fairly common for medical practices to upgrade equipment and sell their used devices for considerable amounts.

Hospital Equipment 1031 Exchange Timeline

Once the transaction is complete, taxpayers have 180 days to acquire a new asset for a valid 1031 exchange to transpire. With this six month period in mind, it is also important to know that at least one property must be identified within 45 days of the sale of hospital equipment.

In order to properly meet deadlines and file correct government paperwork, we highly recommend utilizing a 1031 exchange intermediary to make the process as smooth as possible.

Why Purchase Mineral Rights and Royalties?

Although they are little known to many investors, mineral rights can be one of the most profitable assets in portfolios across the country. Here in the United States, mineral rights can be purchased to acquire a portion of or the entire property’s subsurface.

With active mineral rights, a leased oil and gas company handles all of the onsite operations from exploring to extracting, to marketing and selling the natural resources of the property. As a mineral rights owner, you are then entitled to a portion of each month’s sales, which come in the form of ongoing royalty payments.

Here, your mineral rights are not so much a physical asset, but rather a passive income stream in your portfolio. After selling hefty medical equipment, mineral rights and royalties are usually a welcome and smart investment.

Conclusion

In conclusion, 1031 exchanges are great for deferring capital gains taxes after the sale of medical devices. While medical practices may rarely consider mineral rights as a working asset of their business, individual sellers have tremendous opportunities to reinvest their capital into mineral rights and royalties. In doing so, a new income stream is created and less medical equipment is taking up space in your home or facility.

Today, we highly recommend working with an intermediary when selling your medical equipment and purchasing mineral rights in order to successfully maximize the benefits of a 1031 exchange.

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