Tax Deferring Advantages of 1031 Exchange Mineral Rights

1031 exchange mineral rights

1031 Exchange: The Concept

You might be aware of the various major benefits associated with mineral royalties and interest, but there are many who don’t know the popular advantages of 1031 property exchange. Like-kind exchange is another name for it. The maximum long-term capital gain is presently at a rate of 15 percent, if you are looking into selling your mineral rights or putting them up for partial sale.

A 1031 like-kind property exchange is one of the best ways to defer capital gains from the sale of related real estate ownership. It is a Section in the International Revenue Code whereby in exchange of another like-kind or qualifying property, mineral owners can sell the royalty rights to defer capital gains taxes. Even the thought of the tremendous gain—of paying zero taxes for all proceeds of the sale by using Section 1031—is sure to give you goose bumps. In simpler terms, it means that you won’t owe any amount of tax at the time of deferral or exchange when you swap your mineral rights for a like-kind real-estate property. What can be more significant news for any owner of mineral rights than this if he or she is exploring a new form of investment?

1031 exchange mineral rights

The concept of a 1031 exchange of mineral rights, however, is far from being easy to fathom. After all, this is tax law. There are a few rules and regulations, like the time constraint to the property owner before and after the sale to reinvest the proceeds, and also that the two properties being exchanged have to be similar in nature.

Please note: If you choose to maximize your benefits from this strategy, you must make sure that the monetary value of the like-kind property is equal to or greater than the property being sold in its place. Otherwise, you’d have to pay capital gains taxes on the difference.

1031 exchange mineral rights

The Initiation of a 1031 Property Exchange

As mentioned earlier, since the 1031 exchange involves tax-related issues, it is no cake walk even to initiate it. Mineral rights owners often rely on qualified and experienced intermediaries so that they are well assisted in the streamlining of the processes of the 1031 exchange. The initiation of IRC Section 1031 deals with a complex heap of documents with verbose and confusing legal jargon, and thus lawyers come into the picture. The apt and secure exchange of the funds of the mineral owners depends on these qualified intermediaries, as does the document preparation for the 1031 exchange of mineral rights. Although you may be a mineral owner, that doesn’t make you a jack-of-all-trades. Thus, many mineral owners also appoint these intermediaries as a source of advice that can prove to be of much aid in the entire process of  a 1031 exchange. They also ensure that you get all of the tax benefits that you are entitled to.