Why an Oil & Gas Royalty Qualifies for a 1031 Exchange #3

By wsLKucCIUz 1 year ago
victory man holding up hands to sunrise 1031 royalties exchange real estate peregrine

Although a new concept to most real estate investors, oil and gas royalties have played a more predominant role in 1031 exchanges over the past 10-15 years.

Because royalties are under the ground and not “tangible” like brick-and-mortar real estate, many investors assume that the asset class doesn’t meet the “like-kind” test that all 1031 exchanges must pass.

In fact, 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

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Disclaimer

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.