An Amazing 1031 Option for Exchanging Mineral Rights


The U.S. is one of the few countries that allows citizens to own the mineral rights of their surface property. If a group of citizens owns the property, the mineral rights of that property belongs to them. It’s up to them whether they want to establish a business with the rights or sell them. However, it’s easy to become confused by mineral rights and end up leasing them rather than selling them.

This article will help you better understand the lesser-known 1031 options for your mineral rights and the benefits of selling your rights through this method.

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Regardless of your purchased or owned mineral rights with a property, you can grow your investment by selling your mineral interest through 1031 options. A 1031 property exchange is also called a like-kind exchange, and it allows you to swap your mineral rights for a real estate property of the same value. At this point, because it is not recognized as capital gain, you will not owe taxes. You will only need to pay taxes when you decide to sell the property.

Often, the mineral rights can be exchanged for a traditional real estate investment. This may include ranches or commercial or rental properties. In this case, rather than pocketing the amount from selling the mineral rights, you will be able to invest it in some other business so that the revenue cycle doesn’t stop. Fortunately, there is no time limitation for a 1031 exchange. You don’t have to pay the tax for that property until you sell it in exchange for cash. Even if you make a cash sale for the property, you will owe a long-term capital gain tax rate.

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There are three points that you need to keep in mind when opting for a 1031 option:

1.  If the exchanged property is depreciable, a depreciation recapture may go into effect. In this case, it will be taxed as ordinary income. If this happens, you should consult a professional in 1031 options.

2.  A 1031 exchange is only for investments, so you cannot trade mineral rights for a new home.

3. You and the person who is exchanging the property should identify the replacement property within 45 days and close within six months.

You can get more details about 1031 options from a professional at Ten31 Minerals, a business with expertise in this field that can solve your questions and confusions.