Did you know oil properties can be eligible for 1031 Exchange? Many investors are acquiring oil properties using exchange proceeds from the sale of traditional real estate to diversify their portfolio and capitalize on these often overlooked tax benefits.
Compared to many traditional real estate investments, oil and gas projects are relatively hands-off with no property management expenses or tenant vacancies. If you have rental properties that you would like to sell but you’re scared you would have to pay too much in capital gains, investing in oil and gas direct participation programs may be your next step.
In fact, the depreciation expense of an oil property is divided over a short 7 years, benefiting the investor over 300% faster than traditional real estate investments, therefore expediting the depreciation of the asset.
A 1031 exchange allows you to defer capital gains taxes on a real estate property you’re selling when you exchange it with a “like-kind” property, such as a direct participation investment into one of our oil projects.
But you have to act relatively quickly. Once you sell your existing property, the clock starts ticking. First, you only have 45 days to designate a replacement property. In addition, the exchange must be completed within 180 days.
To qualify for a 1031 exchange and defer capital gains taxes, the property you’re selling must be an investment property (commercial real estate, land, rental property, etc.). Your personal residence does not qualify. And if you have cash left over after the exchange (exchanging a more expensive property for a less expensive property), you’ll have to pay taxes on the difference.
In theory, you could keep making 1031 exchange transactions over and over. For example, once you invest in a Pipeline oil project, and the project is completed, you could exchange it for another project, and then another – deferring capital gains taxes for an extended period of time.
One more thing: A 1031 exchange requires a “qualified intermediary” who manages the exchange of one property with another. They will facilitate the transaction, ensure proceeds are put into a qualified escrow account, handle the paperwork, and make sure future disbursements are directed appropriately per the transaction.
At Pipeline, when you use a 1031 exchange to invest into one of our oil projects, all investment interests need to be held as a General Partner under Pipeline’s Partnership entities – and the partnership must elect out of subchapter K under Section 761 related to this type of investment.
How to Invest
- Consult your tax professional for advice.
- Contact our Partner Relations Department for a list of projects we’re offering.
- Choose a project you’d like to invest in.
- Complete our PPM, subscription agreement, and accredited investor verification forms.
- Once these forms are completed, contact your qualified intermediary for further information on how to complete your 1031 exchange.