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Contango Oil & Gas Company Message Board

  • lexpress56 lexpress56 Feb 12, 2008 9:51 AM Flag

    Like-kind exchange question

    I am not very familiar with the like-kind exchange rules. I thought that if you sold assets for a profit, but reinvested the proceeds in a like-kind asset, you got to defer the gain until the replacement asset was sold. Contango's second quarter results included a giant gain $100m+) for the sale of the Western Core Fayetteville assets, which proceeds were reinvested on January 4 when the company closed on its acquisition of additonal Dutch and Mary Rose interests.

    Will the January 4 acquisition result in the second quarter gains being "re-stated" or adjusted downward in the next quarter financials to wipe off this gain, or how does this work? Any input is appreciated. Thanks.

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    • It is more complicated than just reinvesting in like assets.
      Basically, gains are taxable to the extent cash is received.

      • 1 Reply to MELRNH
      • No, gains on producing oil/gas properties are not taxable if rolled into another producing property within the allowable time frame (90 days, I think?). Doesn't have anything to do with the cash that's received. This is a special ruling from the IRS similar to a real estate 1031 transaction.

        As for the question in the other posting...the gains don't have to be restated - they are what they are - gains. They are set in stone. The only thing not set in stone is whether they are taxable or not. If reinvested in a 1031 exchange, then not taxable. This is my understanding from studying the issue for the past couple months, since Contango first announced the 1031 exchange in Nov or Dec.

 
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