How to 1031 Exchange Trademarks and Intellectual Property into Mineral Rights and Royalties
What’s in a name? Sometimes everything. Are you or your company have a valuable trademark? Then it can likely be sold for a tremendous amount of capital. Trademarks and intellectual property sales are generally a smaller part of a larger merger. Sales with large bottom lines are often an attractive choice after building a successful brand.
What about if the time comes to sell your trademark or intellectual property (IP)?
With that, hefty transactions are often lessened by local and federal taxes. How about in the United States? Capital gains taxes are deferrable on the sale of trademarks or IP with the use of a 1031 exchange.
In this article, we will detail the steps required for selling trademarks and intellectual property. It is when utilizing a 1031 exchange. What’s next with the acquirement of a new asset is necessary? We will also demonstrate how mineral rights can be an attractive option for new capital investment.
How to Sell Trademarks and Intellectual Property
Do you remember the process of creating your trademark? The eventual sale of intellectual property will actually resemble it in a lot of different ways. Once you’ve found a buyer, trademark, and intellectual property sellers are required to notify the U.S. Patent and Trademark Office (USPTO) and file the necessary paperwork to transfer ownership.
More often than not, the sale of a trademark or IP is the result of a buyer finding a seller. This is rather than the other way around. With that said what if you are interested in selling your trademark? Well, there are a few designated online listing sites available that act as a virtual IP marketplace. Beyond this, word of mouth and industry outreach are other popular ways to sell potentially valuable trademarks to relevant buyers.
Determining the Value of Trademarks and Intellectual Property
Although they are intangible, trademarks and intellectual property can be extremely valuable to their owners. Prices are completely up to the discretion of the seller, and IP sales generally come after several negotiations.
The actual value of any kind of intellectual property is truly only determined by a price that a buyer is willing to pay. Trademarks and IP are usually purchased with future cash flows in mind as a result of the acquisition of the property.
Taxes Paid on Selling Trademarks and Intellectual Property
High ticket trademarks and intellectual property can be taxed at rates up to 40% in some areas of the United States. This sizable chunk of the sale price can be accounted for through the following taxations:
- Federal Income Taxes
- Capital Gains Taxes
- Sales Taxes
- Local Taxes
- And More
While most of these payments cannot be avoided, investors in the United States have the unique opportunity to defer all or some of the capital gains taxes paid on the sale of trademarks and intellectual property. To do so, taxpayers must purchase a new property to “replace” the trademarks or IP through a 1031 exchange.
Selling Trademarks and Intellectual Property with a 1031 Exchange
In a 1031 exchange, trademarks, copyrights, and IP can be sold free of capital gains taxes with the purchase of an asset of equal or greater value. If taxpayers choose to purchase a new asset of lesser value than their sold IP, then it is possible to defer only some of the capital gains taxes that would otherwise be paid in the year of the sale. With rates up to 20% for some individuals, 1031 exchanges are one of the most popular tax-saving strategies in the US.
Trademarks and Intellectual Property Like-Kind Properties
At the heart of a 1031 exchange, it is essentially a legal way to “trade” your IP for another asset to maximize your wealth. In the United States, the IRS will typically allow most reasonable personal property acquisitions to qualify for a 1031 exchange with the sale of trademarks, copyrights, patents, and IP. Most commonly, taxpayers can purchase:
- Art Work
- Apartment Buildings
- Mineral Rights and Royalties
- And more
Trademarks and Intellectual Property 1031 Exchange Timeline
By law, taxpayers using a 1031 exchange have 180 days to purchase a new asset after an intellectual property sale. This equates to roughly 6 months. From the date of the sale, it is required that sellers identify at least one reasonable property that can be considered for purchase. This does not need to be the actual asset required, as sellers can identify up to three potential assets for consideration, regardless of their value.
1031 Exchange Intermediaries for Selling Trademarks and Intellectual Property
With paperwork, deadlines, and new properties to consider, most busy investors choose to utilize a 1031 exchange intermediary when selling trademarks, copyrights, and IP. Specialized 1031 exchange intermediaries are very valuable resources for ensuring the successful completion of the transaction with maximum return on investment potential.
Why Purchase Mineral Rights and Royalties?
When considering new assets after the sale of trademarks and IP, it may be difficult to know where to start. In the United States, investors have the unique opportunity to purchase mineral rights, which can be leased to oil and gas companies for the exploration and sale of natural resources.
As a mineral rights owner, successful energy operations entitle you to monthly mineral royalty payments. Royalty payments, also known simply as royalties, typically come in the form of a fixed percentage of operational profits, as defined in an oil and gas lease agreement.
In conclusion, mineral rights and royalties should strongly be considered when selling trademarks, intellectual property, or copyrights in a 1031 exchange. By avoiding capital gains taxes and earning future mineral royalties, taxpayers can maximize their IP sales with a smart reinvestment of capital. For this reason, we strongly recommend working with 1031 exchange intermediaries with exceptional knowledge in the mineral rights industry.
If you have further questions about the 1031 Exchange Trademarks, feel free to reach out to us here.
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