Capital gains taxes are imposed on the gain realized from the sale of real property in the United States. A taxpayer who wishes to avoid the payment of capital gains tax may enter into a Section 1031 Exchange instead of a conventional sale if all the exchange requirements are met. A transaction that qualifies for an exchange allows the taxpayer to defer to capital gains tax that would otherwise be due as a result of a sale. For a transaction to potentially be eligible for Section 1031 treatment the property involved must be held for productive use in a trade or business, or for investment. In addition, the property relinquished must be exchanged for “like-kind” property.
mineral interests
1031 Exchange and Mineral Interests
When a taxpayer enters into a traditional sale of real property the taxpayer may incur capital gains taxes as a result of any gain realized from the sale. Because realized gains have historically been taxed at a high rate taxpayers often look for legal strategies that reduce or eliminate capital gains taxes. One option is to enter into a Section 1031 Exchange instead of a conventional sale. If a transaction qualifies for Section 1031 treatment, capital gains taxes that would ordinarily be levied on the gain realized from the sale are deferred. There are, of course, a number of requirements that must be met for a transaction to qualify for 1031 Exchange treatment, including: