Frequently asked questions.

Landowners have received a share of the revenue from oil and gas wells drilled on their property since the 1850s. That share is called a royalty, and the industry often calls it “mailbox money.” Royalty owners do not drill or operate the wells, and they carry none of the drilling risk or expense. They simply own a slice of the revenue.

The same way as traditional real estate. Royalty owners hold direct deed and title to the asset, recorded and maintained at the county level.

Income and tax paperwork, straight from the operators. Most owners receive 12 payments a year, by check or direct deposit, plus a 1099 at tax time.

Price and production. A royalty owner’s monthly income rises and falls as commodity prices move and as the wells produce more or less over time.

Royalties are built as a generational buy-and-hold asset, but there is steady demand for cash-flowing energy properties. An owner who wants to sell can generally get liquid in 90 to 120 days.

Financing options exist, but royalties are typically owned debt-free.

There are no closing or management costs to own royalties. Title verification carries a cost, but it is generally nominal.

Royalty income is taxed as portfolio (ordinary) income. Some states also assess property tax on royalty interests the way they would on real estate, though the amounts are usually much lower for royalties.

Yes. Because oil and gas royalties are treated as a form of real property, a broker can be compensated the same as when facilitating the purchase or sale of traditional real estate.

Yes. Under Rev. Rul. 68-226 and Rev. Rul. 72-117, mineral interests are treated as real property for 1031 purposes. That includes royalty, mineral fee, ORRI, NPRI, and working interests. Production payments generally do not qualify.

Run the three-question eligibility check. It walks through interest type, production status, and carve-out structure in about sixty seconds and gives you a structural answer with the citation.

Working interests qualify under 1031, but the diligence is more involved than a clean royalty. We route working-interest inquiries to a complex-exchange call path on the intake form.

Yes. Inherited interests typically receive a stepped-up basis at the decedent’s date of death under IRC 1014, which often eliminates capital gains exposure entirely. The exchange may still be the right path for income-generation reasons. Confirm basis with the estate’s CPA.

The IRS clock is 45 calendar days to identify replacement property and 180 calendar days to close, both starting when you sell your relinquished property. Royalties can be identified right away, and most exchanges into royalties close comfortably inside the window.

The day you close on your relinquished property and the proceeds are wired to your Qualified Intermediary. From there you have 45 days to identify replacement property — royalties can be identified immediately — and 180 days to close.

The deferral collapses retroactively and you owe tax on the original gain. There are no extensions for vacation, illness, or family emergencies. Plan the timeline before you start.

Proceeds from the sale of almost any qualifying real property — rental homes, commercial buildings, raw land, farm or ranch land, even other mineral interests. The royalties become your replacement property, in whole or in part. See Royalty Advantages for why investors choose them.

Yes. Split-exchanges are common. The IRS “three-property rule” lets you identify up to three replacements regardless of value; the 200% rule lets you identify more if the total fair-market value stays under 200% of the relinquished property.

Boot is cash or non-like-kind property received as part of the exchange. It’s taxable to the extent received. Exchangers sometimes take boot deliberately to cover closing costs or keep a cash reserve. Be intentional about it.

No. Peregrine sources and sells the royalties you exchange into — it is not a Qualified Intermediary. Your own independent, registered QI holds the proceeds between your sale and the royalty closing. We coordinate with your QI; we are not the QI.

See the full methodology. Every portfolio is underwritten on reserve assumptions, comparable sales, decline curves, and discount-rate sensitivities, summarized in a one-page worksheet so you see the basis for the income projections before you close.

We build portfolios to fit the exchange. Most clients place between $100K and several million dollars; below roughly $100K, transaction costs (title, QI fees, diligence) make a royalty exchange less efficient.

If you later sell royalties on which you have claimed depletion, that depletion is recaptured at sale as ordinary income. Whether a future 1031 exchange defers it is fact-specific and requires CPA review of your situation. Do not assume an answer from this page.

Yes, in states with capital-gains tax. Texas, Florida, and Wyoming have no state income tax. Oklahoma is 4.75%, North Dakota is 2.9% (with a 40% long-term exclusion). The calculator shows state-by-state.

That works too. Peregrine sells royalty portfolios to cash buyers as well as 1031 exchangers. A partner walks through whichever path fits your goals.