My parents passed away in May of 2020 and I inherited their mineral rights at that time. The rights are for approximately 650 acres in Leon county Texas. The property has natural gas. There have been leases of the property over the years with an initial lease payment and very small occasional monthly payments of around $30. Just a few a year. I recently sold the rights for over $300,000. I have looked into using an appraisal service to determine the value at the time of inheritance and have been told it will cost around $8,000 to $10,000. Can I do this myself and if so how? Thanks in advance for any help.
1 Like
If you have records for the payments received the 12 months prior to the inheritance you could check with a CPA to see if you can use a multiple of the payments to determine the value at the time of acquisition. The CPA should be much cheaper.
The payments received in the prior 12 months were less than $100.
The name of what you are looking for is a “retrospective appraisal”.
The reason this is needed is a very common one - to determine the cost basis, which in an inheritance situation is known as a stepped up basis. It doesn’t take a genius to figure out that it’s in your best interest to have this number as high as reasonably possible, in order that the profit from your sale will be minimized, such that your tax bill will be minimized.
The problem with people generalizing what one of these appraisals cost is that there are far too many variables involved to generalize. This can be likened to asking someone, hey, what’s my car worth (oh yea, I mean what was it worth 18 years ago). Not to mention whether or not unproduced minerals were technically recoverable at the time.
There are qualified people who do this, but they’re not under every bush. Moreover, remember, one element of what you’re buying in a service like this is the ability to point the finger at them if ever the IRS questions your numbers in the future. (Kind of why people use accountants to do their taxes - ie, “go ask him, I don’t know”.
Thanks for all of the info. Yes, I am definitely looking for an estimated value that is as close to the selling price as possible since this will minimize the tax hit. But I have checked and an appraisal will cost in the $8,000.00 to $10,000.00 range. And depending on how they do their appraisal they may come up with a very low number. So I am hoping for some do-it-yourself way of calculating the value.
You do not want to do it yourself, since you have no standing with the IRS in case they come calling. Use a company that is certified to do these types of appraisals that do have standing with the IRS as an authority.
I am curious, how did you know if the $300K was anywhere in the ballpark for a current appraisal before you sold? You may have old yourself short… Look upon the cost of having an appraisal done for the time of death as an INVESTMENT not a cost, since the tax bill could be substantial, both at the Federal and State levels.
The longer the time it has been since you inherited the rights, the more likely there could be a substantial difference to the upside. The last thing you want is to have to fight the IRS on the subject matter. Also, the shorter the time between the date of death and the current year, the more likely the difference may not be so large.
Any tax savings you would achieve by having a professional appraisal done will offset the cost of the investment and turn it into a positive return on investment.
1 Like
There are ways to estimate it yourself, but nothing that would be supportable for the highest value possible. Unfortunately, May 2020 is a rough date to establish a value that’s high, but it still had value. Ballpark……probably around half what you sold it for, or thereabout. Prices were about half what they are now, investor confidence was low, but most people sell for less than 100% fair market value (a pro and a con of the situation) so that’d actually help here.
Also….smaller firms can do lower priced appraisals than larger firms… and I’ll just leave it at that. A 650-ac Leon County appraisal shouldn’t be that complicated 
.
1 Like
This topic was automatically closed after 90 days. New replies are no longer allowed.