Royalties In a 1031

Yes, Real Estate is

“Like-Kind” to Oil & Gas Royalty Properties

In 1968, the IRS published the Revenue Ruling 68-331 clarifying Section 1031 of the 1954 Act. The ruling established that real estate ownership interests, whether above or below the ground, met the definition of “like kind” for an exchange.

Oil and gas royalty investment began in the early 1900’s. Owners of royalty assets receive monthly “mailbox money” from oil and gas companies who drill and operate wells on their property.

Unlike oil and gas drilling investments, royalty owners do NOT invest in capital equipment or field operations. Royalty interest holders do NOT get billed for exploration, drilling or operating wells, nor do they share in any of the risks or liabilities associated with that side of the industry.

Over the past four decades, court rulings have re-affirmed that oil and gas royalty interests qualify as “like-kind” to all other forms of real property. In addition, several Revenue Rulings and Private Letter Rulings have further established the like-kind nature of royalties when exchanging out of traditional real estate:

Revenue Rule 55-526
Revenue Rule 73-248
Revenue Rule 73-2117
Private Letter Ruling 8135048
Crichton v. Commissioner, 122 F. 2d 181
Palmer v. Bender, 287 U.S. 551


There are significant risks associated with investing in oil and gas royalties. The above information 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. Risk factors including commodity prices and production can significantly impact the value of the asset and ability for an individual to get liquid. This is neither an offer to sell nor a solicitation of an offer to buy interests in oil and gas royalties.