Investment Strategy
I f you’ve ever considered diversifying your portfolio, mineral rights might be a valuable asset to explore. This article will guide you through the basics of a Section 1031 exchange, how it works, and how to use it to acquire mineral rights, all while deferring taxes that would otherwise be due upon the sale of a property.
WHAT IS A SECTION 1031 TAX EXCHANGE?
A Section 1031 exchange, named after Section 1031 of the U.S. Internal Revenue Code, is a tax strategy that allows you to defer paying capital gains taxes when you sell one investment property and use the proceeds to buy another similar property. The primary benefit of a 1031 exchange is the ability to defer taxes on the sale of real estate, which can be particularly beneficial for real estate investors looking to reinvest without taking a significant tax hit. This tax-deferred exchange applies to like-kind properties, meaning the property you sell must be of the same nature or character as the property you purchase. The tax deferral is a powerful tool for growing your investment portfolio because it allows you to use all your equity for reinvestment
SPONSORED CONTENT Your Shortcut to Energy Asset Ownership IF YOU’VE BEEN CONSIDERING MINERAL RIGHTS, SECTION 1031 TAX EXCHANGES ARE A POWERFUL TOOL TO DEFER TAXES WHILE PRESERVING EQUITY.
rather than to immediately pay capital gains taxes on the gains.
HOW DOES A 1031 EXCHANGE WORK? The mechanics of a Section 1031 exchange are relatively straightforward. Here’s a brief overview of the process. SELL YOUR PROPERTY. Start by selling a property that qualifies for a 1031
TROY W. ECKARD
20 | think realty magazine :: march - april 2025
Made with FlippingBook Online newsletter