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Drilling Into Money Not Boring by Mark E. Battersby New Rules for Trade-Ins, Swaps, and Other Like-Kind Exchanges Most drilling business owners are aware “like-kind” exchanges can be an excellent way to postpone the gain resulting when any of the operation’s assets are disposed of. The Tax Cuts and Jobs Act (TCJA) continues to allow businesses to defer the tax bill on the gains from property they are disposing of by the simple strategy of exchanging it for similar property. Often overlooked as a tax strategy, so-called like-kind exchanges involve swapping or trading one asset for another without receiving strictly cash - or a large, immediate tax bill. Although more a strategy for deferring a tax bill rather than a tax bill reduction, with multiple exchanges, gains from sold or traded business assets can be deferred for decades, ultimately entirely escaping taxation. Fortunately, the tax rules allow a drilling contractor to postpone paying tax on the gain resulting from sold or exchanged business assets so long as the proceeds are reinvested in similar property, a like-kind exchange. Remember however, gain in a like-kind exchange is only tax-deferred, not tax-free. Most exchanges must merely be of a like-kind - a phrase which doesn’t always mean what many think it does. Under the surprisingly liberal rules, one business can even be exchanged for another, but there are traps for the unwary. First, both the property given up and the property received must have been held for productive use in a trade or business. Vehicles, equipment, machin- ery, real estate, etc. used in a business all qualify. The second basic requirement is obvious: the property exchanged must be of l ike-kind. A good example is a truck for a truck. With real estate (the most popular type of l ike-kind exchange), almost any ownership interest in real property exchanged for another interest in real property will qualify. The tax law’s Section 1031 govern- ing like-kind exchanges was modified by the TCJA to limit like-kind exchanges to so-called “real” property (but not for real property held primarily for sale). The redef ined l ike-kind exchanges ensure real estate investors maintain the benefit of deferring capital gains realized on the sale of property. Last December’s TCJA limited the Section 1031 like-kind exchanges to “real” property, eliminating intangible business property, but largely leaving this strategy which has been so helpful to so many within the drilling industry untouched. New, faster equipment and business property write-offs will natural- ly have an impact, making professional advice and guidance a good idea. Mark Mark E. Battersby may be contacted via e-mail to michele@ worldwidedrillingresource.com 4½" flush joint pipe in 20’ lengths Elevators SkyRex We Support Our Troops! Stock Sizes: 1” thru 24” for casing, column pipe, tubing, and drill pipe. *Load test certificates available *Offered with or without base UsedWorldwide Ideco Drawworks DRILL COLLARS From 3 ½ " to 10 " 30’ and 40’ Lengths Family Owned & Operated office fax 806-791-3731 806-791-3755 www.rexmcfadden.com Drill Pipe Swivel 6WC Slips 5/8 ‐ 3/4” Sucker Rod Elevator In Stock Spring Sale! Spring Sale! 15 WorldWide Drilling Resource ® APRIL 2018