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1031 Exchange of Real Estate into Oil and Gas Interests

By Bill Exeter

Services for Real Estate Pros with Exeter 1031 Exchange Services, LLC President & CEO

November 25, 2007 03:55 PM

1031 Exchange of Real Property for Oil and Gas Royalty Interests

Investors are often unaware they can sell their real property and 1031 exchange a portion of the their investment into oil or gas producing wells without paying any tax on the profits from the sale of their real estate property pursuant to Section 1031 of the Internal Revenue Code.

The Internal Revenue Service classifies real property and royalty interests in oil and/or gas properties as "like kind replacement property" for 1031 exchange treatment. You can generally purchase either a working interest or a royalty interest in oil and gas wells.

The 1031 exchange is one of the most valuable strategies because it allows you to defer the payment of inocme taxes, keeping all of your equity (cash) working for you, and thereby increasing the value of your investments and networth.

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Ken Cook

Content, coding, marketing, host. - Marietta, GA

Content Marketer/Creator

William - Help me out here because we don't have too many oil wells in Georgia (there are some) but we do have several natural gas wells. The only 1031's I have worked with on producing wells required the property be exclusively titled to the investor (buyer) and not just an assignment of a portion of the rights. In other words the investor could indeed purchase a portion of the land under which the mineral rights are granted but the property, even if it was only a small parcel (1/16th of an acre) had to be deeded solely to the investor. Like I indicated to you earlier my only training has been through experience and from dealing with Starker services and from your discussions with me I now have a little doubt about the information I have received over the years.

Nov 25, 2007 04:15 PM

Tom Braatz Waukesha County Real Estate 262-377-1459

Coldwell Banker - Oconomowoc, WI

Waukesha County Realtor Real Estate agent. SOLD!

William,

What a great post. I do alot of Starker exchanges, but this is the first I heard about into oil. I know of other alternatives. I absolutely love it when I read something so informative that gives me sight into other avenues such as your post. I really appreciate it.

Sincerely

Tom Braatz

Nov 25, 2007 04:19 PM

Bill Exeter

Exeter 1031 Exchange Services, LLC - San Diego, CA

1031 Tax-Deferred Exchange Expert

Hi Ken,

There are a number of ways to buy oil and gas interests. You can purchase the entire interest, but in most cases investors will acquire a fractional interest in 10 to 30 wells. The fractional interest would be treated just like a fractional interest in fee title to real estate except that they are acquiring a mineral right (i.e. below the ground right).

Please keep us in mind for your next 1031 exchange transaction. We would love to work with you.

Nov 26, 2007 02:42 PM

Hi Tom,

You are most welcome. We always try to keep everyone informed so they can make better informed decisions.

Please keep us in mind for your next 1031 exchange.

Nov 26, 2007 02:44 PM

Randy L. Prothero

eXp Realty - Hollister, MO

Missouri REALTOR, (808) 384-5645

I had a client invest in wells. My best advice was to seek a good attorney to get guidance. I had no experience in that arena and my license forbids me form giving advice anyway.

Nov 26, 2007 04:30 PM

1031 Exchange of Real Estate into Oil and Gas Interests

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