I am seriously considering selling mineral rights in Lea County NM, and am having trouble getting a clear idea of the tax impacts. It's a complicated situation that I haven't seen anywhere else.
Back in 2014 my father assigned his mineral rights as follows - my sister and I were named as Remainderman, with my step mother as Life Estate. All the acreage is held by leases with the same producer, one portion with a producing gas well (though declining after several years) and the adjacent smaller portion undeveloped. Dad died back in June 2015.
My step mother received an offer to sell last fall - she needed the money and encouraged us to sell. Instead, we bought out her life estate in December and now have full ownership of the mineral rights.
For tax purposes, how do we determine the tax basis if we want to sell, and will the capital gains timing (short vs long) be determined by the date my father died or when we purchased the Life Estate? It's been 2 years since he died but only 6 months since we bought the life estate. And in the last 6 months, the offer price for the acreage has more than doubled, from approx $6k to $14+k.
So... if we're considering selling now, and we look at the life estate date it will be short term capital gains (full income rate, maybe 39%) vs long term gains (at 20%). If we can use the date of death, it will be long term regardless of when we sell it.
Do I have the reasoning correct ? I know I will have to find professional tax help, but it would be really useful to know if we have to wait another 6 months in order for the lower tax rate to kick in.
PS...yes, I know you should never sell mineral rights, but we're at retirement age. The money would make a big difference now, but not so much in 10-20 years... and not willing to have the current price bubble for rights collapse.