exchange (typically an investment property, not your primary residence). IDENTIFY A REPLACEMENT PROPERTY. You have a limited amount of time—45 days from the sale—to identify the property you want to acquire as a replacement. The IRS allows you to identify up to three properties, but there are specific rules on which properties you can identify and how you must do so. CLOSE THE DEAL. After identifying the replacement property, you must complete the purchase within 180 days from the sale of the original property. USE A QUALIFIED INTERMEDIARY. The IRS requires you to use a qualified intermediary (QI) to handle the funds during the exchange. This ensures you do not have access to the proceeds from the sale, which would disqualify the exchange. IT’S A TAX DEFERRAL, NOT AN ELIMINATION. Keep in mind that a 1031 exchange does not eliminate tax liability on the property being sold; it simply defers it. However, using the exchange structure can be a way to defer taxes while growing your investment. You’re probably wondering whether a Section 1031 can be used to acquire mineral rights. The short answer is yes. You can use a 1031 exchange to acquire mineral rights as long as the transaction meets certain requirements.
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.”
(e.g., oil, gas, coal, and precious metals) from a specific parcel of land. If you own mineral rights, you might lease those rights to an energy company or mining operation, which then pays you royalties based on the extraction of resources. Acquiring mineral rights can be an appealing way to diversify your investment portfolio, especially in areas where energy resources are abundant. They have the benefit of being unburdened by many of the liabilities associated with traditional real estate, like maintenance and tenant issues. However, mineral rights are distinct from the real estate on which they sit. They represent a separate asset class from the physical land, which is why it’s important to understand how Section 1031 exchanges apply to them. USING A 1031 EXCHANGE TO ACQUIRE MINERAL RIGHTS To successfully acquire mineral rights through a 1031 exchange, you must ensure the exchange is between like-kind
UNDERSTANDING MINERAL RIGHTS
Before diving deeper, it’s important to understand what mineral rights are and why they can be an attractive asset to own. Mineral rights give the holder the legal ability to extract minerals
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