Mineral Rights Taxes

It's important to understand the tax implications from selling your mineral rights. The good news is that there are many tax advantages from selling your mineral rights as opposed to paying tax on the income from the mineral rights each year. In fact, the number one reason we've found that people sell their mineral rights is because of the tax advantages!

ADVANTAGES

• Mineral income is taxed at a higher rate than income from the sale of mineral interest. This is because the income as you own the mineral rights is considered ordinary income. Ordinary income is taxed at rates as high as 37%. The income from the sale of a mineral interest is usually primarily considered capital gain income. Capital gain income is taxed at a maximum of 20% and is even taxed at 0% in some instances

• You are probably paying your tax preparer or tax software provider a premium to account for your mineral income. Mineral income is nuanced tax topic and requires specialized knowledge to property prepare your tax return each year. Not to mention those pesky 1099s that never seem to be accurate and the state tax filings! This burden is removed if you decide to sell your mineral rights. 

• Property taxes are a recurring charge to owning mineral properties. You're on the hook for county property taxes every year as long as you own the minerals. In fact, if you forget to pay your property taxes, the county can take possession of your mineral properties. 

• Inherited mineral rights receive a "stepped up" basis. This basis is equal to the fair market value of the minerals when you inherited them. The amount of income you will pay capital gains tax on is equal to the amount you sell the minerals for minus the basis. We've worked with many sellers who recently inherited their mineral rights and owed $0 in taxes! It's hard to beat that.

• Mineral rights qualify for section 1031 gain deferral treatment. This means that if you sell your mineral rights and invest the proceeds into other real property, such as an Air BnB rental or residential rental property, you can exclude all or a portion of the gain from your taxable income in that year. 

We have a team of CPAs who can assist you with any questions you may have regarding the sale of your mineral properties. We want to be certain you understand the tax implications from selling your mineral rights -- even if you decide not to sell!