For those of you that get “sales” offers, make sure they are very clear about what they will actually pay. Sometimes, they will deduct for what you already got paid in a bonus. Also, do the math for the multiple wells (and multiple zones) royalties for 25 years that exist or will exist before you think about selling. Full value price is rarely offered and don’t forget you will owe a whopping tax bill. Just saying……but do what is best for your family. If you need help with the math, friend me and I can ballpark it for you.
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We had a WHOPPING percentage of taxes that we had to pay on the money we brought in from our royalty. Will know better next time about how to spend the money but that’s bad when you have to buy something you don’t need in order to not pay it all to the government. We put all our royalty in our company so none of the tithes we gave back to the Lord was deductible. Now that our royalties have gone down so much we may not get the chance again to do better. Nevertheless we are blessed and the government probably needed it so they could give some more foreign aid to countries that hate us. Whole nother sermon! lol
VERY ENTEERRESTING!!! lol
Bob-been there, done that…I don’t have any inherited shares of IBM, but I read the tax statute on inherited royalty and even a quasi laywoman was able to digest it.
We received an interest owed and penalty for not sending in estimated taxes last year on our royalty when we had no way of know how much we would receive in order to send in those est. taxes. Doesn’t seem right but they do what they want to seems like.
Got to watch out for that IRA !
Those darn IRAs will creep up on you…
Bob - You. Are. The. MAN!!! You nailed it, in my opinion. But who am I? Just a “layman” trying to get ahead in life!
Good stuff BOB BERRY!
Thinking back…When dad died a couple of years ago we were advised by dad’s accountant to get a current appraisal on the mineral’s he left us in northern Okla. and told that when and if we made money on it we would only have to pay taxes on what we made on it from the time we inherited it to the time we sold it so the more it was appraised for at the time we got it the better. Didn’t really understand if he meant what we made off of royalties during that time or what we sold it for or both.
OOOh…don’t really know how to document it since so much time has passed.
Hi Linda. I have a question for you. Since you have your mineral rights in a corporation, do you and your hubby draw a salary from the corporation and there by allowing you to fund your IRA’s or 401K’s to defer income taxes?
Kathlyn - Thank you for the Charity Navigator website suggestion!
Kathlyn…seems like that might be an error on someone’s part that they would offer $40,000 AN ACRE but if not send them our way! We’d take that for any or all of ours in 2n4w today!!!
FYI. There is no 1099 issued for mineral rights sold that were inherited so no taxes due
Vicki - This will be my “last” post on this subject, but I attempted to author my original post in a low key comment!
But I do not guess at anything in life, and while I would “never” suggest how one should treat the sale of a mineral right I assure you that I am not guessing or shooting from the hip when I would suggest that the sale of an inherited mineral right is definitely a taxable transaction and on a worse case basis it would probably be considered a Sale of Section 1231 Property with perhaps as low a basis as zero which is what I would use even though I could very easily prepare a case for a somewhat higher basis.
My last comment here has to do with the possibility of no Form 1099 being issued in regard to a sale of a Mineral Right, and I would be shocked if any reputable professional (while also realizing that there are a lot of different type of vultures out there attempting to acquire Mineral Rights under the market by phone or mass unsolicited letter offers) would purchase a Mineral Right without also issuing a Form 1099 as that also assists in establishing their new basis.
I do wish you good luck in your efforts in regard to this subject as this will be my last efforts at attempting to add what I consider to be a knowledgeable comment to an original comment that I found to not be in sync with what I have known and practiced for many years.
John…not laughing a haha laugh just laughing to keep from crying. Bob Berry, are you not an accountant/CPA or something like that? The IRA gets us anyway we go doesn’t it?
Linda - While I do not want to be considered any expert on these tax subjects, for “you” I do have one comment to add in respect to your not having paid in enough on your estimated taxes, and that is as a general rule you are only required to have as much estimated taxes on the current year paid in as equal to or in excess of what you paid in for income taxes during the year before “as long as you pay in the total remaining due on your current return by April 15” and any extension would “not” fall under this rule exception and then accordingly the taxes still owed would probably be subject to substantial interest and penalties.
And yes in some of my prior lives I have held multiple state CPA licenses in addition to a great number of other licenses (which really only means that I learned how to pass tests and was fairly versatile), even though I am far removed from holding myself out as an active licensed “current” CPA.
But my few comments here are pretty basic knowledge, and I certainly do “not” want to hold myself out as the forum tax guru as I post rare enough that those of you that have communicated with me over the years should know that I do not have to have an opinion on every subject and instead I only attempt to add commentary where I may know something (without guessing) that may be of help to others!
Just checked oil prices and they were down just under $60.00 (around $59.66) for WTI but gas was up a little at $3.00 a thousand!!! Wahoo!!!
Linda - I really do not know the best current approach to establishing a current value, but the letter offers certainly cannot hurt as part of the valuation process even if most if not all are “low ball” offers.
My gut feeling (which I am also going to brain wash our daughter on) is that a Mineral Right Appraisal is probably irrelevant today while an individual is alive, but that upon an individual passing away thus triggering an inheritance it “might” be wise to having coached the heir to establish the possible step in value at the particular time of inheritance.
In my wife’s and my case we will have a current revocable trust (for the benefit of our daughter) kick in at the time of both of us passing, and then when she passes away we have designated the Mineral Right Portfolio to go to the Humane Society.
So while we do “not” ever plan for any of our family members to be selling a Mineral Right, you never know if circumstances change and as an attempt at preventative maintenance I am probably going to have do some additional homework as to whether our basis just transfers to the Trust or whether it would be prudent to still achieve an Appraisal at the time of both my wife’s and my passing in order that the Trust would not have an unplanned unnecessary higher tax event in the case of the daughter needing to make a sale many years down the road as I would like to believe that her benefactors are going to be around for awhile even though you never know!
No John T…we haven’t been paying ourselves a salary but have given that some thought and if our checks go back up will definitely give that a shot if you think it’s a good idea. Thanks for reminding me of that!!! I do keep the books and we both do a lot of traveling around checking on the minerals.