Why should I consider a 1031 exchange?

Are many oil & gas properties exchangeable assets?

What properties qualify for a 1031 exchange?

The definition of like-kind is crucial, in that like-kind does not mean that the seller of a mineral interest has to buy another mineral interest. Many people think a sale of mineral interest must be followed by the purchase of another mineral interest. This is not the case, and the definition of like-kind is much broader, which allows sellers to re-invest in other categories of qualifying properties. For example, all real estate in the United States is considered to be like-kind to any other domestic real estate, as long as each property qualifies for the proper use. The only requirement to meet the qualifying use standard is that the property is held for use in trade or business or for investment. Holding a property for appreciation constitutes “holding for investment. Thus, mineral interests that have been held for investment (not purchased for imminent sale after they were acquired) can be sold as part of a 1031 exchange, and the proceeds can be used to purchase a ranch, multi-family rental property, commercial building, undeveloped land, resort investment property, and so on. The following are examples of valid exchanges:

• Overriding royalty for unimproved real estate
• Mineral interests for an investment resort property
• Interest in a producing oil lease extending until the exhaustion of the deposit for a ranch property
• Perpetual water rights for a fee interest in land
• All the above can be interchanged, and the properties can be in different states.

What does not work for 1031 exchanges in oil & gas?

How long do I have to own my property before I can exchange it?

Can I purchase my replacement property first?

Do I have to re-invest all of my cash?

How long do I have to complete my exchange?

Why choose Petroleum Strategies for your 1031 exchange?


Petroleum Strategies, Inc. does not give tax or legal advice. The information contained herein should not be relied upon as a substitute for tax or legal advice obtained from a competent tax and/or legal advisor.