Sell your royalties - pay no tax??
So, you want to sell your royalties but you’re afraid of outrageous taxes? Consider a 1031 exchange.
A 1031 exchange, also known as a like-kind exchange, is a tax-deferred transaction that allows an investor to sell a property and acquire a new one without paying capital gains tax on the sale. This can be a useful tool for investors looking to exchange oil and gas royalties for a new investment property. Here is a step-by-step guide on how to do a 1031 exchange of oil and gas royalties:
Identify the property you want to sell and the replacement property you want to acquire. Both properties must be "like-kind," which means they must be used for business or investment purposes and be of the same nature or character.
Consult with a tax professional or attorney to ensure that the exchange meets the requirements of a 1031 exchange and to help you navigate the process.
Hire a qualified intermediary (QI) to facilitate the exchange. The QI is an independent third party who holds the proceeds from the sale of the relinquished property and uses them to acquire the replacement property.
Execute a written agreement with the QI outlining the terms of the exchange.
Sell the relinquished property and transfer the proceeds to the QI.
Identify up to three potential replacement properties within 45 days of the sale of the relinquished property. You can also identify more than three properties as long as you ultimately acquire 95% or more of the properties identified.
Acquire the replacement property within 180 days of the sale of the relinquished property.
Complete the exchange by transferring the title of the replacement property to you and obtaining any necessary financing.
It's important to note that there are specific rules and deadlines that must be followed in order to qualify for a 1031 exchange. It's also important to consult with a tax professional or attorney to ensure that the exchange meets the requirements and to help you navigate the process.
If you are interested in a transaction like this, we know many QI’s and can walk you through the process.