Real Estate Brokers: What To Do with the “Leftover Equity” in a 1031 Exchange

As a Real Estate Broker, do you ever have clients who do a 1031 exchange, secure a replacement property but find that the amount of the new acquisition leaves them short of the total exchange amount? Maybe they are short by as little as $50,000 to $100,000? In most cases like this the client ends up paying taxes on the remaining amount (Boot) of the 1031 exchange. However, in many cases they pay quite a bit more than the current 15% capital gains tax on that remaining amount. In fact, when you consider the recapture (of depreciation) that the IRS requires plus any state tax, it ends up being significantly more. There is another option to explore. Present them with an acquisition of the OTHER real estate, mineral interests. What are mineral interests? Like the surface real estate, mineral interests are a titled position recorded in the county clerk’s office, often in the same instrument. The difference is, mineral title conveys the rights below the ground. What value do they have? It can be significant value, especially in states like Texas where Energy Companies extract oil and natural gas from below the surface and pay the mineral owners a royalty off the gross production. There are millions of people who own mineral interest in the United States and billions of dollars are paid out to them each year in the form of royalty payments. The U.S. is the only country in the world where mineral interests can be privately owned. Click to read more at