We inherited some mineral rights years ago. How do you determine the basis for tax purposes? I’ve seen one method that based it on the price of oil and gas at the time, compared to the time of the sale. There was no activity at the time of inheritance.
No taxes have to be paid on non-producing mineral estates. This assumes there has been no sale.
What if in the meantime production commenced and after several years you decide to sell the producing mineral rights? Is your capital gains basis 0?
Yes. You can try to find if the surface (if you own that, too) had a tax appraisal amount at the time of inheritance and that can be a basis if the whole property is sold. However, if there is no production at the time and as you stated, it starts later, you have no basis. Exception if you paid an attorney or someone to negotiate the lease. That can be deducted as basis, if you didn't already deduct it when paid.
If you sold all or part of your minerals in 2017 you need to calculate the capital gain or loss of the property while you owned it and include it in your tax return. Capital Gain or Loss is equal to the Sale price minus cost of selling minus the value of the asset at the time of inheritance or control.
I don't think the price of oil or gas at the different times is reflective of capital gains or losses. You could be doing yourself a disservice. In many areas of Oklahoma, a long time multi-zone producer, non-producing minerals can have significant fair market value. FMV depends on the geologic potential of the specific land at the time of inheritance.
Gary L Hutchinson
You didn’t say what state you inherited minerals in. Colorado has a tax in some counties on minerals even if not producing so you better know how a state or county taxes.
"FMV depends on the geologic potential of the specific land at the time of inheritance"
How does one go about determining that?
I just received estimated taxes letter for this year from Reeves Co. Assessor on a very small Non Participating Royalty Interest. Does anyone know how that's calculated? Is the fact that it's NPRI affect how taxes are estimated? Interestingly, I just signed and filed a ratification that pools my interest with adjoining section. This is the first time I've been contacted by appraisal district about taxes-ever. Is this a coincidence or is it because I signed the ratification that was filed with Reeves Co. which triggered the tax event?
Call the county assessor. I will bet that they don't know the answer either.
I know this isn't O&G tax info... it's much simpler. My farm is in two counties. Every year I find mistakes with their assessing ... in one county they counted my well pump house as an equipment house, in another county, they counted the detached and rusty, falling down metal shed in back part of the house as part of the house. Both of these instances led to incorrect appraisals. Every tax season I see ads looking for new appraisers.
If the well is participating and you have a NPRI, it converts to a royalty percentage. That is reported to them by the operator. Check the interest they show on the tax appraisal and compare it to the interest on your revenue check. They should be the same. If not, contact them. I can assure you, they didn't compute the interest--it came from the operator. If you haven't received a division order from the operator, contact them before you contact the County. You might also get a second assessment depending on the property. They also bill for the Pecos-Barstow-Toyah ISD, and often, Reeves separates the billings. Pat is correct, for the past two years, they have sent me two of everything (by their mistake) and when i call them, they say " just pitch the second one away."
Your story is an excellent reminder for everyone to check their appraisal notices for accuracy! The regular protest deadline in Texas is now May 15th, unless your notice provides for a later date.