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1031 Exchange Requirements

Oil and gas royalties are nothing new, but with the current tax laws, specifically IRC (Internal Revenue Code) 1031, they are making more and more sense to investors.  Read on for more about 1031 exchanges, the requirements, how they work, and how you can leverage them with oil & gas royalties.

IRC-1031 Exchange Overview and Requirements

Oil and gas royalties are nothing new, but with the current tax laws, specifically IRC (Internal Revenue Code) 1031, they are making more and more sense to investors. The long-term track record of oil and gas royalties is stellar, and in virtually all cases, outperforms other similar investments such as real estate or other securities.

Whenever you sell business or investment property and you have a gain, you have to pay tax on the gain at the time of sale. IRC 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange, such as one which provides oil and gas royalties. Gains deferred in a like-kind exchange under IRC 1031 are tax-deferred, but are not tax-free.

There are time limits for the exchange, but certain extensions are available in many circumstances, and the time frame involved is long enough to acquire oil and gas royalty assets.

Read on to learn more about 1031 exchange requirements and how you can leverage this with oil and gas royalties through Royal Mesa Minerals.

What are the requirements?

Requirement #1 – Like-Kind Property:  To qualify as a 1031 exchange, the property being sold and the property being acquired must be “like-kind.” This is a very broad term, meaning that both of the properties must be “the same nature or character, even if they differ in grade or quality.”

Requirement #2 – 45 Day Identification Period:  The Internal Revenue Code requires that the new property be identified within 45 days of the closing of the sale of the old property.

Requirement #3 – 180 Day Purchase Period:  Section 1031 requires that the purchase and closing of one or more of the new properties occur by the 180th day of the closing of the old property.

Requirement #4 – Use of a Qualified Intermediary:  By law the taxpayer must use an independent third party commonly known as an exchange partner and/or intermediary to handle the exchange.

Requirement #5 – Title Must Be Mirror Image:  Section 1031 requires that the taxpayer listed on the old property be the same taxpayer listed on the new property.

Requirement #6 – Reinvest Equal or Greater Amount:  In order to defer 100% of the tax on the gain of the sale of old property, the new property must be of equal or greater value.

Requirement #7 – For Reverse Exchanges, Title to Both Properties Cannot Be in Same Name at Same Time: A taxpayer may not have both the old as well as the new property titled in their name at the same time and still qualify for a reverse exchange.

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Our Operator Partnerships Include:

Royal Mesa Oil and Gas Royalties with Texaco & Shell
Royal Mesa Oil Royalties with ExxonMobile & ConocoPhillips
Royal Mesa Oil Royalties with Devon & EOG Resources
Royal Mesa Oil Royalties with Anadarka & Penn Virginia
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View Royal Mesa Mineral's Reg D filings with the U.S. Securities and Exchange Commission. There are significant risks associated with investing in oil and gas ventures. The information contain throughout this website is for general purposes only and is not a solicitation to buy or an offer to sell any securities. General information on this site is not intended to be used as individual investment or tax advice. Consult your personal tax advisor concerning the current tax laws and their applicability and effect on your personal tax situation.
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