Posted by on Aug 26, 2019 in Mineral Rights | 0 comments

Taxes and Your Mineral Rights

If you have minerals on your property, you’ve likely considered selling your rights to those minerals for a profit. There are pros and cons of deciding to sell your mineral rights, and you’re probably weighing the options trying to decide what option is best for you and your situation.

Something you may not have considered when weighing these options is the taxes resulting from your mineral rights. If you’re considering selling your mineral rights and want to learn more about why it may be a good move for you in terms of your taxes, you’re in luck! Keep reading to find out more.

Taxes on Mineral Rights

As most of our assets, mineral rights are subject to taxes. Before delving in on the benefits you can receive from selling your mineral rights, I wanted to go over some of the taxes applied to said mineral rights.

Severance Tax

You’ll notice a severance tax is applied to your mineral rights. This tax is applied when there is an extraction of gas and oil — it is designed to pay for the costs associated with extraction. Different states will have different taxes on mineral rights, so make sure to look up the laws where you live or where you are attempting to sell your mineral rights.

State and Federal Taxes

The payments you receive from selling your mineral rights are considered royalty payments, so thus they are considered revenue by both the state and federal levels. Therefore, these payments are subject to state and federal taxes. Again, states vary on their requirements for income taxes. Mineral rights owners will be taxed federally if over one-third of their income comes from the royalty payments from mineral rights.

Ad Valorem

Ad valorem taxes are collected on the county level and are paid when minerals are extracted. This amount depends on the fair market of mineral rights.

The main benefit in regard to your taxes from selling your mineral rights is paying fewer taxes. If you hold onto your mineral rights, you may end up paying more taxes — especially because the royalties you earn from your mineral rights are considered revenue by the government. Furthermore, these royalties earned are considered regular income and can be taxed as such.

Knowing how much you’ll pay during tax season isn’t that easy, either. The market value of oil and gas is constantly changing, which means that predicting the tax value assessed for your mineral rights can be a challenge. Selling your mineral rights helps get rid of that uncertainty in April.

If you’re considering selling your mineral rights, for reasons related to your taxes or otherwise, the first thing you should do is speak to a mineral rights broker like The Mineral Auction. They’ll be able to take you through the entire selling process and answer any questions you have along the way. Make sure to speak to a mineral rights broker in your state, because the selling process and taxes may differ depending on where you’re living.

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