|
|
|
Oil, Gas and Mineral Interests
Interest in oil, gas and mineral estates are eligible for 1031 tax deferred exchanges given the existence of a perpetual interest. Leases, royalties and production payments are often how the perpetual interests are conveyed. Leases provide the lessee the right to remove minerals for a specific period of time or until depletion along with incurring the costs of discovery and removal. Leases are also known as a working or operating interest. The lessee may deduct the intangible drilling costs (IDCs) for removing the mineral. IDCs include labor, repair and maintenance, fuel, transportation, supplies and other related production expenses. For Federal tax purposes, mineral leases are considered a real property interest and eligible for 1031 tax deferred treatment.
Oil, gas or mineral royalties do not represent an operating interest, and not incur or are responsible for production costs. Instead the holder of the royalty receives a percentage interest in the materials removed for the life of the property. For Federal tax purposes, royalties are considered a real property interest and eligible for tax deferral treatment.
Production payments are not eligible for tax deferrals given they are a right to the oil, gas or mineral at a specific value, produced and paid from a percentage of removed minerals. Unlike royalties, production payments are finite based upon a specified production versus royalties that are perpetual or until the mineral is exhausted.
Intangible drilling costs represent an income tax shelter. To learn more about IDCs and the 1031 benefits oil and gas royalties, go
to Blue Oak Wealth Management, LLC.
|
|
|
|
|
Andrew W. Gustafson,
CES®
Managing Member
Atlas 1031 Exchange, LLC
Toll Free: 866.521.1031 | EFax: 850.201.6911
Dallas: 214.523.9067 | Destin: 850.837.1031 |
Houston: 713.821.1776
Email: andgus@atlas1031.com
|
|
Atlas 1031 Exchange, LLC is a Qualified Intermediary and does
not provide advice regarding specific tax consequences of IRC 1031 tax
deferred exchanges. Investors are encouraged to seek the
counsel of their attorney and accountant.
|
|
|
|
© 2007
Atlas 1031 Exchange, LLC. All rights reserved. Site designed by VTD, Inc.
|
|
|
