Summit Venture

Chapter 1

Your situation

Why a 1031 exchange creates a different kind of planning problem

A 1031 exchange rewards preparation and punishes haste. The rules are strict, the deadlines are fixed, and the replacement property you choose will shape your finances long after the exchange closes.

Deadline	The clock started at closing	You have 45 days to identify replacement property and 180 days to complete the purchase. The deadlines rarely move.
Tax	A large deferred gain is at stake	A missed step can make the gain, including depreciation recapture, taxable this year.
Management	Many sellers are done being landlords	Tenants, repairs and vacancies are often the reason the property was sold in the first place.
Concentration	Real estate may already dominate	Rolling into another building can keep most of your wealth in a single asset class.

Where you are in the exchange matters

What to focus on depends on how much of the clock is left

Pick the stage that describes you. Each one changes what is possible and what to confirm first.

Planning a sale

Before the relinquished property closes

This is when you have the most options. A qualified intermediary needs to be in place before closing, because touching the sale proceeds yourself can end the exchange.

It is also the best time to do diligence on any replacement you are considering, including an oil and gas interest, so the identification deadline does not force a rushed choice.

Questions for your CPA
How much gain, including depreciation recapture, am I deferring?
How much debt will I need to replace to avoid taxable boot?
Would the specific oil and gas interest I am considering qualify for my exchange?

Inside the 45 days

Sold, and inside the identification window

You must identify replacement property in writing within 45 days. Most sellers use the three-property rule, or the 200% rule if they want more options. Identifying backups protects you if a first choice falls through.

Diligence is compressed here. A deadline is a reason to be organized, not a reason to accept an option you have not properly evaluated.

Questions for your CPA
Which identification rule fits my situation?
Can I identify an oil and gas interest alongside a property as a backup?
What diligence can realistically be completed before day 45?

Identified, closing by day 180

Identified, and working toward closing

The purchase must close within 180 days of the sale, or by your tax filing deadline if that comes first. Your qualified intermediary transfers the funds, and the documents need to match what you identified.

This is where boot usually appears: leftover cash, or less debt on the replacement than on the property you sold.

Questions for your CPA
Will any part of my exchange be taxable boot?
Do I need to extend my tax filing to keep the full 180 days?
What documents will my qualified intermediary need from the seller?

Chapter 2

Capital roles

Before energy: what each part of your capital is for

No single asset does every job. A useful way to think about a balance sheet is to assign each part of it a purpose, then judge each asset only against that purpose. Select a layer to see what it does and what it gives up.

Reserves

Cash, Treasury bills, money market funds

The money that has to be there no matter what happens in markets.

Its job Cover near-term obligations, the costs of the exchange itself and any tax due on boot.
What it gives up Growth. After inflation and tax, cash tends to lose purchasing power over long periods.
Worth asking If part of my exchange becomes taxable, where will that tax come from?

Core market holdings

Diversified stock and bond funds, retirement accounts

For most people, this is the engine of long-term wealth and is built first.

Its job Long-horizon growth through broad, low-cost diversification, with daily liquidity and well-understood tax treatment.
What it gives up Control and certainty. Prices move with markets, and in a sharp decline most holdings tend to fall together.
Worth asking Does this layer balance the real estate I already own, or add to it?

Real assets and private holdings

Real estate, private funds, business interests

Assets whose value is tied to something physical or to a private business rather than a stock price.

Its job Income that is linked to real activity, potential inflation sensitivity, and exposure that does not move in lockstep with public markets.
What it gives up Liquidity and simplicity. These assets can take months or years to sell, require more diligence, and often carry higher minimums.
Worth asking How much of my net worth is already in real estate, and is that where I want it?

Direct operating ownership

Including working interests in oil and gas wells

Owning a share of an operating business directly, with its costs, decisions and outcomes. A direct working interest in oil and gas wells sits here.

Its job Participation in the economics of a real operation, with governance rights and tax attributes that flow directly to owners.
What it gives up Liquidity, limited liability and predictability. Outcomes vary widely by project, and for many owners the right amount in this layer is zero.
Worth asking If this capital were lost entirely, would my plans change? If yes, this layer is premature.

Layer widths are illustrative, not a recommended allocation. The right mix depends on your circumstances and should be set with your own advisers.

Chapter 3

Ways to own energy

Four replacement property paths, and what each actually gives you

Most 1031 sellers compare a handful of replacement options. They differ in what you own, how much management they require, how they handle debt and what they leave you holding afterward.

Attribute	Another rental propertyResidential or commercial	Triple-net (NNN) leaseSingle-tenant property	Delaware Statutory TrustFractional, sponsor-managed	Oil and gas working interestHow Summit JVs are structured
What you hold	Title to a building	Title to a single-tenant property	A fractional interest in a trust that owns property	A direct share of specific wells
Management	Yours: tenants, repairs, vacancies	Light; the tenant usually covers taxes, insurance and upkeep	None; the sponsor manages	The operator runs the wells; JV members take part in material decisions
Replacing debt	You can place a new mortgage	You can place a new mortgage	Often includes debt arranged by the sponsor	Typically no debt, so replaced debt may require added cash
Liquidity	Months to sell	Months to sell	Limited; usually held until the trust sells	Limited; generally held for several years
Ongoing tax attributes	Depreciation	Depreciation	Depreciation, passed through	Depletion on production, plus possible drilling deductions on future project spending
Concentration	Stays in real estate	Real estate and one tenant	Stays in real estate	Moves part of your wealth outside real estate
Liability	Yours as owner	Yours as owner, largely shifted to the tenant	Limited to your interest	Not limited in the same way; this is the tradeoff that enables the tax treatment
Eligibility	Open to anyone	Open to anyone	Accredited individuals	Accredited individuals, verified before any commitment

Like-kind property Since 2018, like-kind exchanges apply only to real property held for business use or as a long-term holding. Real property is broadly like-kind to other real property, so a rental home can be exchanged for land, a commercial building or, in some cases, certain oil and gas interests.
Boot Anything received in an exchange that is not like-kind property, such as leftover cash or a reduction in debt. Boot is generally taxable in the year of the exchange, even when the rest of the gain is deferred.

Chapter 4

Tax mechanics

The tax mechanics, explained without the shortcuts

A 1031 exchange defers tax on the sale. The replacement property then brings its own tax rules. Here is how both sides work, followed by the limits that matter most when you exchange into oil and gas.

IRC §1031	Like-kind deferral	Gain on the sale is deferred when the proceeds go into like-kind real property through a qualified intermediary.
45 and 180 days	The exchange timeline	Identify replacement property within 45 days of closing, and complete the purchase within 180 days.
IRC §613A	Percentage depletion	Once a well produces, qualifying owners may deduct 15% of gross income from the property each year.
IRC §469(c)(3)	The working-interest rule	Working interests held without limited liability are exempt from the usual loss limits, so deductions may offset active income.

Summit focuses on redeveloping proven fields, which can combine new drilling, work on existing wells and acquisitions of producing assets. Select a project type to see which attributes typically matter most. This is a qualitative guide, not a projection.

New drilling

Intangible drilling costs	3	Typically significant	Most spending on a new well is drilling-related.
Equipment depreciation	2	Can be meaningful	Casing, wellheads and surface equipment are capitalized.
Depletion	2	Once producing	Begins only after the well produces.
Early production income	1	Delayed	Revenue waits for drilling and completion.

Work on existing wells

Intangible drilling costs	2	Depends on the work	Recompletions and new zones can generate IDCs; routine repairs are treated differently.
Equipment depreciation	2	Can be meaningful	New pumping or surface equipment is capitalized.
Depletion	3	Typically significant	Wells are already producing, so depletion applies.
Early production income	2	Existing plus added	Existing production continues while new work comes online.

Acquiring producing wells

Intangible drilling costs	1	Usually limited	The drilling already happened; little of the price is drilling cost.
Equipment depreciation	2	Can be meaningful	Part of the price may be allocated to equipment.
Depletion	3	Typically significant	Much of the price is recovered through depletion.
Early production income	3	From acquisition	Production is already flowing at purchase.

The limits that matter in an exchange

Where the headline benefits get smaller

These are the details most often left out of 1031 and oil and gas marketing. Each is a reason to have your qualified intermediary and CPA review a specific interest before you identify it.

Boot Leftover cash or reduced debt is generally taxable in the year of the exchange.
Carryover basis The replacement generally takes on the deferred basis, which affects future depletion and depreciation.
Recapture is deferred, not erased Deferred gain and recapture can become taxable when you later sell without exchanging.
Identification rules The three-property and 200% rules limit what you can name within 45 days.
State rules Some states track deferred gain and can tax it later, even after you move.
Laws change The replacement should still make sense if the tax treatment became less favorable.

Chapter 5

What you take on

What a JV member takes on

Direct ownership means sharing in the operational risk of a real business. These considerations deserve as much attention as the tax treatment.

Commodity prices you do not control A well can perform as planned and still earn less if prices fall.
Wells that perform differently than modeled Reserve estimates are engineering judgments, not certainties.
Additional costs Owners pay their share of costs, including overruns and repairs.
Illiquidity There is no public market. Plan for capital to stay committed for years.
Liability exposure The tax treatment depends on liability not being limited. Review it with your attorney.
Tax outcomes that can change Deductions can be limited, recaptured or changed by new legislation.
Concentration and sponsor risk Moving from one building to one project swaps one concentration for another. Sponsor quality matters.
Environmental and regulatory change Evolving regulation can affect costs and timelines.

Can an oil and gas interest be replacement property in my 1031 exchange?

Certain oil and gas interests, including some working and royalty interests, can qualify as like-kind real property. Whether a specific interest qualifies depends on how it is structured and on state law, so confirm it with your qualified intermediary and tax adviser before you identify it.

How does the 45-day deadline affect due diligence?

It compresses it. The best approach is to start diligence before the relinquished property closes and to identify backups. A deadline is a reason to be organized, not a reason to accept an option you have not properly evaluated.

I had a mortgage on the property I sold. What happens to that debt?

To avoid taxable boot, you generally need to replace the debt you paid off with new debt or additional cash. Oil and gas interests typically carry no mortgage, so sellers with significant debt often combine them with other replacement property or add cash. Your CPA can confirm the numbers.

Is JV membership similar to owning a DST?

No. A Delaware Statutory Trust gives you no management role. Summit structures its ventures as entrepreneurial joint ventures, in which JV members hold governance rights, take part in material decisions and share in the operational risk and liability of the venture.

Can I do another 1031 exchange later?

Summit's Exit Right discipline includes 1031 pathways when an asset is sold. Whether a future exchange is available depends on the specific interest, how it is sold and the tax rules in effect at the time.

Do I qualify?

Participation is limited to individuals and entities that are accredited under SEC Rule 501. For individuals, the common tests are income above $200,000, or $300,000 together with a spouse or spousal equivalent, in each of the past two years with a reasonable expectation of the same this year, or a net worth above $1 million excluding your primary residence. Because Summit relies on Rule 506(c), it takes reasonable steps to verify status before any commitment.

How long would my capital be committed?

Treat it as committed for several years. There is no public market for a working interest, and an exit on a particular timeline cannot be assumed. Summit's Exit Right discipline reviews each asset continuously to decide whether to hold, optimize or exit.

What will my qualified intermediary and CPA need?

Typically a description of the interest and how it will be conveyed, the states where the properties are located, the expected split of costs between drilling, equipment and acquisition, and a closing timeline that fits within your 180 days. Summit can provide project-level information on request.

Sold the Property. The 45-Day Clock Is Running.