# Basis of Mineral Rights
**URL:** https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312
**Category:** Accounting and Taxes
**Created:** [April 18, 2018, 5:40pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312 "2018-04-18T17:40:08Z")
**Posts on this page:** 19
**Page:** 1
### Author:  [@John\_A\_Carlin](https://www.mineralrightsforum.com/u/John_A_Carlin)
#### Post date: [April 18, 2018, 5:40pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/1 "2018-04-18T17:40:08Z")
I am trying to figure out the cost basis of mineral rights inherited in 1968 and 2012 in Garvin County. I have been told (1) zero if inherited, (2) value reported on Estate tax return, and (3) based on income generated from royalties.
Rights have been sold and I just want to report the correct cost basis for determining Capital Gain or Loss.
Thank you, John
---
### Author:  [@Kathy7](https://www.mineralrightsforum.com/u/Kathy7)
#### Post date: [April 18, 2018, 5:46pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/2 "2018-04-18T17:46:59Z")
Amount listed on Estate tax return should have been determined from an equation using the monthly income at the time. That should be your basis.
---
### Author:  [@John\_A\_Carlin](https://www.mineralrightsforum.com/u/John_A_Carlin)
#### Post date: [April 18, 2018, 5:51pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/3 "2018-04-18T17:51:08Z")
What if there was no amount listed on the return?
---
### Author:  [@M\_Barnes](https://www.mineralrightsforum.com/u/M_Barnes)
#### Post date: [April 18, 2018, 8:24pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/4 "2018-04-18T20:24:12Z")
The general rule of thumb for vertical wells is four years of oil royalties and seven years of gas royalties. Nor horizontals back in 1968, but the 2012 ones might have some and that may be a different story.
If you have no documentation, then your value may be set at $0 by the IRS and you pay capital gains on all of it.
---
### Author:  [@John\_A\_Carlin](https://www.mineralrightsforum.com/u/John_A_Carlin)
#### Post date: [April 19, 2018, 5:53pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/5 "2018-04-19T17:53:37Z")
Thank you Kathy
---
### Author:  [@John\_A\_Carlin](https://www.mineralrightsforum.com/u/John_A_Carlin)
#### Post date: [April 19, 2018, 5:54pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/6 "2018-04-19T17:54:10Z")
Thank you M Barnes
---
### Author:  [@TODD\_M\_Baker](https://www.mineralrightsforum.com/u/TODD_M_Baker)
#### Post date: [April 26, 2018, 3:17pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/7 "2018-04-26T15:17:09Z")
Zero.
---
### Author:  [@Laura\_C](https://www.mineralrightsforum.com/u/Laura_C)
#### Post date: [May 11, 2018, 1:22pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/8 "2018-05-11T13:22:25Z")
It would not be zero, because you sold it, therefore it has value. Almost everything has some value. Inherited assets get a stepped basis to their fair market value at the time of death. Any reasonable valuation will usually be accepted as long as it can be explained. Depending on the amount of taxes you are going to pay on this sale would dictate how much effort you wish to put into calculating a basis. The 36- to 48-month basis is a valid method and easy if you have access to 1099’s or the decedent’s Schedule E. You can use the Estate Tax Return but the goal on the Estate Return is to get the lowest reasonable valuation for the estate. Your goal is the exact opposite.
If none of these easier calculations are available to you, you could make a case for taking your sale amount and reducing it by the annual inflation rate by year for the last 6 years. The key is whether it is a reasonable method of valuation. If it’s a significant amount of taxes, talk to an accountant or attorney that specializes in estate planning.
---
### Author:  [@TODD\_M\_Baker](https://www.mineralrightsforum.com/u/TODD_M_Baker)
#### Post date: [May 11, 2018, 1:38pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/9 "2018-05-11T13:38:29Z")
Laura - The question is ‘cost basis’, not value. John inherited the minerals so his ‘cost’ was zero.
---
### Author:  [@M\_Barnes](https://www.mineralrightsforum.com/u/M_Barnes)
#### Post date: [May 11, 2018, 2:24pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/10 "2018-05-11T14:24:03Z")
If you inherit, you are not necessarily at zero. If you have an estate valuation by an engineer or have the data to prove what Laura C just said, you can get the step up in value. An attorney or accountant can also help with the evaluation.
---
### Author:  [@Laura\_C](https://www.mineralrightsforum.com/u/Laura_C)
#### Post date: [May 11, 2018, 3:32pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/11 "2018-05-11T15:32:07Z")
Inherited property gets a stepped-up basis or cost basis for tax purposes. The trick is calculating what the basis is. I have used the 36- to 48-month rule. I have also hired an engineer to provide a reserve estimate with appropriate pricing and a PV12 amount which was used in the tax return.
You could also call the IRS. In my experience dealing with the IRS and preparing Estate Tax Returns, they have been very helpful and reasonable.
---
### Author:  [@John\_A\_Carlin](https://www.mineralrightsforum.com/u/John_A_Carlin)
#### Post date: [May 11, 2018, 4:34pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/12 "2018-05-11T16:34:34Z")
Thank you Laura C, I agree with your explanation and will see what I can figure out. Much appreciated.
---
### Author:  [@John\_A\_Carlin](https://www.mineralrightsforum.com/u/John_A_Carlin)
#### Post date: [January 2, 2019, 11:46pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/13 "2019-01-02T23:46:17Z")
Good afternoon Laura,
I have a value of 220,625 over 48 months.
How would I apply this figure if trying to reach a basis?
Thank you for your time.
---
### Author:  [@Richard\_Winblad](https://www.mineralrightsforum.com/u/Richard_Winblad)
#### Post date: [January 3, 2019, 4:45pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/14 "2019-01-03T16:45:50Z")
If you inherit an asset, then your basis is the value of that asset on the date of death of the decedent. No matter what the decedent’s basis was.
If you are gifted property, then your basis is the same as your donor.
While it may be difficult to determine the 1988 value, I would seek the assistance of a landman to provide an appraisal.
---
### Author:  [@Richard\_Winblad](https://www.mineralrightsforum.com/u/Richard_Winblad)
#### Post date: [January 3, 2019, 4:54pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/15 "2019-01-03T16:54:28Z")
Sorry to disagree. But you will be entitled to Stepped-Up Basis. See: [IRS Page](https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritances) It states: To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of property inherited from a decedent is generally one of the following:
- The fair market value (FMV) of the property on the date of the decedent’s death (whether or not the executor of the estate files an estate tax return ([Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return)](https://www.irs.gov/forms-pubs/about-form-706)).
- The FMV of the property on the alternate valuation date, but only if the executor of the estate files an estate tax return (Form 706) and elects to use the alternate valuation on that return. See the [Instructions for Form 706](https://www.irs.gov/forms-pubs/about-form-706).
See also: [26 U.S. Code § 1014 - Basis of property acquired from a decedent](https://www.law.cornell.edu/uscode/text/26/1014)
No need to pay full capital gains if there is a basis. This is why it is better to inherit, rather than be gifted, appreciated assets.
---
### Author:  [@John\_A\_Carlin](https://www.mineralrightsforum.com/u/John_A_Carlin)
#### Post date: [January 3, 2019, 8:40pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/16 "2019-01-03T20:40:43Z")
Thank you, Richard. I agree with you concerning FMV on date of death. But I am just trying to figure out what the basis would be on the 36-48 month rule with the 1099’s total = $220,625. Problem is no values were listed on the Estate tax return. But I do have the 1099 documentation. John
---
### Author:  [@John\_A\_Carlin](https://www.mineralrightsforum.com/u/John_A_Carlin)
#### Post date: [January 4, 2019, 12:01am UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/18 "2019-01-04T00:01:23Z")
Thank you for your time Richard, I appreciate your help. I finally figured out what I needed I believe. You have a nice day. Happy New Year!
---
### Author:  [@Richard\_Winblad](https://www.mineralrightsforum.com/u/Richard_Winblad)
#### Post date: [January 5, 2019, 8:55pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/20 "2019-01-05T20:55:34Z")
That would be a CPA question.
---
### Author:  [@Kenny\_DuBose](https://www.mineralrightsforum.com/u/Kenny_DuBose)
#### Post date: [July 2, 2019, 4:10pm UTC](https://www.mineralrightsforum.com/t/basis-of-mineral-rights/25312/21 "2019-07-02T16:10:29Z")