Like-Kind Exchange and Taxes (Section 1031)

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Money made from selling mineral rights is taxed as a “capital gain”. The tax rate on capital gains is 20%.

Like-Kind Exchange and Section 1031

Section 1031 of the IRS allows you to utilize the money that was obtained from the sale of property (for example mineral rights) and use this money to reinvest in ‘like-kind’ replacement properties.

But how does using the like-kind exchange help me?

The like-kind property exchange allows for the taxes that would normally be paid on the sale of mineral rights to be deferred. This could mean that you could save a substantial amount of money to invest in other properties.

For example:Let’s say that you receive $100,000 for your mineral rights. At the current capital gains tax you would be taxed $20,000. Using Section 1031 that $20,000 could instead be used to reinvest into other properties!

How does it work?

In order to utilize the like-kind exchange both the property that is being sold and the property being purchased must be property that will be used for business or investment. Also the property that is being purchased must be done so within 45 days of the sale of mineral rights. Consult a tax lawyer for more information.

Capital Gains Tax

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