Sold Section 36, Tnshp 10N, Range 9W in Okahoma. Need to establish basis at time of inheritance, late 2019. Curious why the buyer would not have any history, but I’m getting nowhere with them. Thoughts?
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If you inherited or purchased the minerals, Your basis is the market value at the time of acquisition less 100% of the depletion which you have deducted on your tax return. Your after-depletion basis can be reduced down to, but not less than, zero. If the estate did not have an appraisal to establish basis, then you need to find an appraiser. The appraiser can establish the value based on the producing wells in 2019 or if the minerals were not producing, then determine what minerals were selling for at that time. The IRS expects mineral owners to keep track of the basis over time. Your buyer will not know the basis of your inheritance or how much depletion you have taken over the years.
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Might you be able to suggest an appraiser? Minerals were inherited and had no income. Thanks!
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You can observe qualified professionals (often with localized expertise) who provide services to mineral owners right here on The Mineral Rights Forum. You will notice them in 3 different places on the site:
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in display image ads and text links on site
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in our Mineral Service Provider Directory in the main navigation bar above. These are arranged by professional discipline.
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as a Business Member within many conversations throughout the site Look for the blue colored “B” on their picture and blue colored text).
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No one listed in OK except lawyers, whom I asked for a referral.
You are going to have no depletion. You would guess. If your predecessor in title received offers, and kept a record of said offers, that is pretty much your only way to keep track of the basis over time. I mean heck, it’s the only reasonably true look at the basis in 2019. Everything else done by a professional will be somebody pulling a number out of their butt, unless you are talking to somebody who has some history with buying/selling minerals in that area in 2019. Which seems very unlikely.
The goal is to have some basis, but also not 100% make up your basis. If I were you, I would look at the price of oil in 2019 and the price of oil when you sold and just call that ratio the basis. Who at the IRS is going to dispute that? (Answer: nobody)
Average WTI price in 2019: $56.98
Average WTI price in 2025: $65.46
Your basis is 87% of the sales price today. You did some math, you pay some taxes, you aren’t stuck with a zero for basis. Everybody wins.
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Awesome! I SO MUCH APPRECIATE IT!! Insert smiley face emoji . . . . .
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That is absolutely not an IRS acceptable standard of valuation of market value at date of death. Just a made up number. If as of 2019 the minerals had not leased or producing for a long time, the value would be substantially lower, perhaps negligible. More modern drilling techniques and area drilling and current leasing would account for sudden interest and increase in current value. If you are audited by IRS, that guess will not be accepted.
Laugh. Properly scolded. Trust me, I understand the situation, and accountants and lawyers. There is zero chance that everyone, or even a big % of everyone, that is selling minerals is getting a realistic professional appraisal. I do a lot of mineral valuations a year. Our valuations in 2019 in most places aren’t that far off on our valuations for 2025. Oil price is lower today, cost of capital is higher today, but risk is lower due to 6 years of drilling. Net effect, value is a bit lower. Some places I bought minerals in 2019 that were WAY too high, 200% of today. Neither of us know where this is. We don’t know that it went up in value, we just know that a new owner decided to sell it. The appraiser is just going to guess also. Same as you are doing here.
If you put a non-zero basis less than the current sale value, and the current sale value is less than 7 figures, the IRS is not going to audit you. Zero chance, unless they are auditing you for something else. And if this does come up in an audit, “It wasn’t producing in 2019 and its not producing today, so I just went with the only publicly available math, that oh btw says I do actually owe capgain taxes here” best effort is going to pass the sniff test for individual non-pro owner.
Redhead: Get a lawyer. Pay an appraiser. Get an accountant. All for $. And then expect to get told the whole sale value is taxable. Or go with 87% and tell the IRS that I told you that was fair. If this is millions of dollars, then yeah, it’s worth it to find somebody professional who will get you a stepped up basis that is more than 87% of the current sale.
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Nmoilboy I like your style. No spin no selling. Good info. How refreshing
Watch it there Ms redhead. Don’t get bit
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