Many people know how to sell their mineral rights. In fact, if you have valuable producing or non-producing mineral rights in the United States, you may be getting offers to sell all the time. The fact is, oil and gas companies need land to extract resources, and your mineral rights may be extremely valuable to them. In this article, we will outline what you can expect when you decide to sell your mineral rights.
Receive Your Compensation
First things first, when you sell your mineral rights, you will receive some compensation. If you’re selling mineral rights in Texas, Colorado, South Dakota, or any other highly valued state, then you may get a lot of money.
File the Correct Tax Information
Unfortunately, you will not receive the exact amount of money that is printed on your deed, because mineral rights sales are a taxable transaction. There are two main methods you can use to make sure that you do not pay too much tax on your mineral rights sale. It is recommended to speak to a CPA to help choose between filing for a capital gains tax or a 1031 Exchange.
Capital Gains Tax
If you’ve owned your mineral rights for more than a year prior to selling them, then you qualify for a long term capital gains tax. In doing so, you will be able to limit the sale’s tax rate anywhere from 20% all the way to 0%, depending on your income bracket. Capital gains taxes are designed to be lower than the standard income tax rate.
If you are using the sale of your mineral rights to directly finance another asset, then you can utilize a 1031 Exchange. A 1031 Exchange, which is named after a section of IRS code, allows you to defer the taxes on your mineral rights sale if you use the funds to purchase a similar kind of property. In the eyes of the law, mineral rights sales can be exchanged for other real estate purchases like land or homes.