Newbie Tax Question

Texas Mineral Rights Reeves County, TX
1

My wife and her brother inherited mineral rights in Reeves County, Texas, last year and subsequently leased their portion for 3 years. What are the tax results? Will we get a 1099 form from the leasing company? Do we pay some to Texas as out-of-state income? No state income tax I know, but is there some type of investment income tax or other oil-related tax things/forms I need to be aware of? There are no producing wells as yet on any of the sections they own.

Thanks for any guidance on what we need to do this first year for reporting—again no producing wells (yet).

2

In general:

Lease bonus is ordinary income.

Net royalty payments are ordinary income but subject to depletion allowances.

Sales of mineral rights: Profits are subject to capital gains taxes considering value at the date of death. Estate taxes may apply for very large inheritances.

Application of Texas filings and taxes should be discussed with your tax preparer.