1031 Exchange
A like-kind exchange under IRC Section 1031 that lets an owner defer capital-gains tax by reinvesting mineral-sale proceeds into other real property.
A 1031 exchange, named for Section 1031 of the Internal Revenue Code, lets an owner sell investment real property and defer the capital-gains tax by reinvesting the proceeds into other "like-kind" real property. Mineral and royalty interests are generally treated as real property for this purpose, so a mineral owner can roll a sale into other minerals, a ranch, an apartment building, or similar real estate and push the tax bill down the road.
The rules are strict and the timelines are short. You typically must identify the replacement property within 45 days and close within 180 days, and the proceeds usually have to pass through a qualified intermediary rather than your own bank account. Cash you keep ("boot") is taxable, and missing a deadline blows the deferral.
A 1031 defers tax; it does not erase it. The deferred gain carries over as a reduced (substituted) basis in the replacement property, so it resurfaces when you later sell that property in a taxable transaction. This is general information, not tax advice; coordinate any exchange with a CPA and a qualified intermediary. See capital gains tax and our selling guide.