We have file cabinets full of documents pertaining to our mineral holdings. What documents do we need to save to be prepared for selling all our mineral rights? What will we need to sell them and what will we need to have for IRS after we sell them? Sure would like to know!
Vivian
Honestly nothing. The mineral buyers have to confirm their own title. You just need to keep any income or transactional documents for taxes, if applicable.
It may help the sales price and attract more bidders if you have deeds and title records and copies of the signed leases and current check detail available for the purchaser. Often only the memorandum of lease is filed and the terms of the actual lease is an issue. Buyers look at these records on sites such as Energynet. Those old documents can be really important.
Yikes:
Keep in mind that the sale of an asset involves potential capital gains implications. I am not a CPA but you will need to know your basis. Generally what you paid for them or the value at the time of inheritance. Less depreciation you may have taken. If you donât know your basis you will freak out at tax time. Watch this forum. Withing the next few weeks there will be lots of people posting âHow do I determine the basis of the minerals I sold?â
Notice: Informational only. No attorney-client relationship is formed by this post. I am an Oklahoma-licensed attorney, but this is not legal advice. Do not share confidential facts in this public space.
Keep in mind that if you had unsolicited offers to buy, you may have pending activity and it is wise to find out what is happening as you may need to ask for more in the purchase price or decide not to sell.
If the mineral rights were put into a Trust the basis is the value once a transaction completed transfer into the Trust, even when it was a transfer from you to your Trust (Step Up value). Research this, inherited property title might have been titled from owner to the beneficiary and from them to their Trust which might (?) create a tax event from the owner to you personally so see if you can get them titled directly to your Trust. I am far from qualifted here but worth a few AI searches.
You seem to be mixing different things. A step-up in basis occurs when the owner dies and the heirs get the value at the date of death, whether the asset goes to them individually or into a trust. There is no step-up in basis if the living owner transfers the assets into a trust. Rather the trust has the ownerâs basis. Any use of AI for research is only a starting point on legal and tax matters. AI is notorious for providing many limited or erroneous answers. You need to go to the source, such as the state statute or case law, or for step-up in basis to the Internal Revenue Code to determine the how and under what circumstances the basis is changed.
You might not want to rely on AI for the response. AI is like a really smart recent law school graduate who gets 20% of things wrong.
According to IRC § 1014, you donât actually get a âstep-upâ in basis just by moving minerals into your own trust while youâre alive. Since a revocable trust is a âdisregarded entityâ for tax purposes, the IRS treats the transfer as if you still own them personally. Your original cost basis carries over.
The big âStep-Upâ happens at death. That is when the minerals are re-valued to their current market price for the beneficiaries. Also, transferring inherited minerals into a trust usually isnât a âtax eventâ because itâs not a saleâitâs just a change in how the title is held.
[26 U.S. Code § 1014 - Basis of property acquired from a decedent | U.S. Code | US Law | LII / Legal Information Institute] 26 U.S. Code § 1014 - Basis of property acquired from a decedent | U.S. Code | US Law | LII / Legal Information Institute )
Tax Considerations for Trusts and Estates - Oklahoma Bar Association
Notice: Informational only. No attorney-client relationship is formed by this post. I am an Oklahoma-licensed attorney, but this is not legal advice. Do not share confidential facts in this public space.
Thank you all! This is very helpful. One more question; if I have tax forms that every year name all the companies producing income for us andshow how much income we got from each purchaser that year, do we have any reason to save the month by month detailed report that comes with each check? Iâm looking down the line when we finally sell the mineral rights and have to establish basis. Thanks for your advice.
My accountant told me to save all monthly check stub statements for seven years for IRS purposes. You can scan them and save on your computer and also backed up in the cloud. That will save on physical storage space. They have nothing to do with basis.
Your basis is based upon the value of the minerals as of the date you purchased the minerals or the date of death of the person (or six months later) that you inherited from.
The original basis must be reduced by the annual depletion that is deducted each year on the federal tax return, down to (but not less than) zero. If there has been a lot of royalties over the years, the cumulative depletion can easily exceed the original basis, leaving a zero basis. Mineral owners should maintain a spreadsheet to keep track of the original basis and accumulated depletion.
Exactly. I forgot to mention the depletion, if taken.