The 1031 Exchange is a powerful tool for deferring the payment of capital gains taxes. Section 1031 of the IRC offers a broad definition for the types of property eligible for the tax deferment benefits of an exchange.
Certain Oil and Gas Royalties are considered "like-kind" property, and can be eligible for tax deferment benefits of a 1031 Exchange. Section 1031 of the US Tax Code, enacted in 1921, allows owners of certain real and personal property to sell such like-kind property and defer taxation of capital gains. The like-kind provision is broad, including land, rental, business property and oil and gas royalties, any of which can be exchanged for the other. The rule also requires that the "Exchanger" use a safe harbor to hold the proceeds while the exchange is in progress.
Section 1031 of the US Tax Code states that any form of real property can be exchanged for any other form of real property, this includes oil and gas royalties. Although the vast majority of 1031 Exchanges involve traditional forms of investment real estate (Commercial, Industrial, Residential, Raw Land, etc.), oil & gas Royalties are another form of real property that can allow you to diversify into a new and different asset class.