Tax on mineral rights sale

Hi there, I have been told different things by different people. I sold my mineral rights in Texas and there was no 1099. I keep hearing that in Texas you do not have to report a mineral rights sale. I live in another state but you all would no much more about this. Do I report the sale of mineral rights to the IRS without a 1099? Thank you

There can be a possible capital gains tax… Were the rights inherited? If so no tax

Let me clarify, there is a tax bases on the date of inheritance sorry

I believe there are capital gains tax if you held the minerals for more than 1 year in most cases, even if inherited.

If you bought the minerals and they have gone down in value I believe you could argue your way out of Capital gains tax.

Yes i inherited them and had no idea I had them until I got an offer letter, they weren't even in my name yet.


cost basis or tax basis? Sorry I am confused. I never filled out a 1099

Thank you for your help

I inherited them. I had no idea as they weren't in my name, I think about 12 people owned it, I was the only one they could find left so I received an offer letter, so I owned a part or a bigger acreage. They had to first get it in my name and then I sold them. I was not given a 1099 and one of the other people that offered (not the one I sold to) told me I do not report it and no 1099? However many people tell me I need to, and many say not to if no 1099. I just want to get my taxes wrapped up and cannot get a for sure answer, lol.

Thank you for your help

I will tell you this and give you the benefit of my personal experience, I am not a lawyer. Capital gains tax are federal and which state will not matter. It could be argued that you owned the minerals as soon as your predecessor passed. In any case, if the minerals had been in your name for more than 1 year before the sale, I believe you can count on paying Capital gains tax. I believe that the basis on unleased and non-producing minerals in the state of Texas is $0. It would be tough to not show capital gains on their sale.

If I am totally off base, I'm sure someone will correct me

Ask a/your CPA to be on the safe side.

Good luck,


Pat gives good advice below. Let nothing I or anyone else says should replace that of a qualified CPA.

That being said, as soon as your predecessor in title passed away, the rights passed to you. Whether you knew about them or not. If that is 1 year or more from the date you sold them, then that is federal long term capital gains taxes - This is a good thing as they are not taxed at as high of a rate as your ordinary income tax. Mineral purchasers are not required to send you a 1099 for the sale. However, if you want to stay within the law, you will need to pay taxes on the amount. Generally you would be taxed on the difference of value between the value of the minerals on the date you inherited them to the value on the day you sold them. Many times, there is not an easy way to establish the value at the date of inheritance. You can hire a mineral appraiser to see if they can give you the value at the date of inheritance, but this will cost some money - I'm unsure how much. Many times people will just assume they are worth nothing as RW stated above if the minerals were unleased and non-producing at the time you inherited them. This may actually be less expensive than hiring an appraiser if we're not talking about too much money.

I hope this helps.

Yes you need to report. No state income tax, though.

Okay, I'll take the bait.

MInerals have a value greater than $0 whether leased or unleased. What Telschow should do is determine the value on the date of his predecessor's death. That will become the new cost basis for this property, and if owned for a year, before the sale, then he qualifies for the lower capital gains treatment. The trick will be determining the value (which is also called "the stepped up value"). As a mineral appraiser, there are a number of tools available to reduce the tax bite. These include U.S. Lease Price Report, which will provide the most common lease bonus in the area for the desired timeframe. Then you multiply the lease bonus by a factor that correlates to the tier of the property (e.g., 3 times the bonus for Tier 3, 4 times for Tier 2 and 5 times for Tier1). Another source will be leased or deeded minerals in the vicinity. Just takes time to research, and the willingness of other lessors and sellors to share their data.

What bait? Sorry, I was mixing apples and oranges there for a moment. The basis in Texas would be $0. Notwithstanding, I think the rest of your answer is an attempt to Baffle with cow chips and falls far short of an appraisal if done by laymen. Now, if you are suggesting they get an actual appraisal, I would suggest that they do no such thing....for the very reasons Texas Tea stated in the post just above yours. It is expensive.

Your telling "As a mineral appraiser", does it really help people who are not mineral appraisers? People who do not have the credentials to back up the total string of supposition? I would suggest that they need an actual mineral appraisal by someone with credentials to do as you described.

Their subscription to the US Lease Price Report would only set them back $270.

I agree, a professional appraisal will cost, as any professional service. I don't know the magnitude of this sale. Was it $500 or $50,000? That would certainly affect my decision to engage an appraiser.

I am confused that you would continue to say in Texas the value would be $0. Unleased minerals are sold every day, almost always for an amount greater than $0. Telschow definitely has a tax basis greater than $0, and whether he hires a professional appraiser or conducts a laymen's appraisal (as we do all the time when we value the donation of used clothing etc. at tax time), they should not pay Federal Income Tax on the full sale amount.

I find it truly refreshing that someone in oil and gas related industry tells someone that they can with no training and no schooling and no credentials, do what the professional is paid to do.

I said I was mixing apples and oranges for a moment. You are correct that I should have said for Texas instead of in Texas. My fault. Freely admitted. I even did it twice!

I still don't agree that the "layman" seller can convince the IRS that the minerals were worth a multiple of a lease bonus that was never received because it is supposition piled atop supposition. If they had a geologic report I would say go for it but the expense of that will be large.

I appreciate your working so hard to put yourself out of business because that is exactly what would happen if you are correct and word got out that literally anyone could give such a valuation and the IRS would accept it.

If you actually convince me that literally anyone can do it and the IRS will accept it, I will shell out for the subscription and for a website for a couple I know who need jobs. I will tell them not to quit their day jobs just yet though.