Minerals and Tax Implications, A Simple Guide
Are you a property owner with mineral rights contemplating whether or not to sell? It can be a complicated issue, so we will discuss your options in depth so that you can make an informed decision.
In this piece, we will explore the following:
Mineral Rights Tax Implications 101
Selling Mineral Rights; Tax Implications
Getting the Proper Information from the Experts
Mineral rights and tax implications can be confusing, so taking your time researching and talking to experts is the right way to go. But to start, let us give you a small summary of what you should expect.
Mineral Rights and Tax Implications 101
Mineral rights are the rights to exploit minerals found on a piece of land. These rights can be bought, sold, and leased to mining companies. The mineral rights owner is typically the land owner, but this is not always the case.
Different taxes can apply to mineral rights depending on the extraction type and location. The most common types of taxes are royalties and severance taxes.
Royalties are typically a percentage of the value of the minerals extracted and paid to the mineral rights owner. Severance taxes are a tax on the act of extracting minerals, and paid to the government.
Some mineral rights are leased to a mining company for a set period. The lease terms will determine how much the company pays royalties and severance taxes.
It is essential to consult with a mineral rights advisor before entering into any agreement, as there can be significant tax implications.
Selling Mineral Rights and Tax Implications
When it comes to selling mineral rights, you should know a few things about the tax implications, whether you are the owner or seeking information about tax on the sale of an inherited mineral right.
Capital Gains Tax
If you sell your mineral rights for more than you paid for them, you will have to pay capital gains tax on the difference. The amount of tax you owe will depend on your tax bracket. For example, if you are in the 15% tax bracket, you will owe 15% capital gains tax.
Depreciation Recapture Tax
If you have been depreciating your mineral rights, you may be subject to paying depreciation recapture tax when you sell. The rate of taxation will depend on your tax bracket.
When selling mineral rights, consulting with a mineral rights professional is essential to ensure that you are structuring the sale in the most tax-efficient manner.
Getting the Proper Information from the Experts
When dealing with mineral rights, it is imperative to seek professional advice from qualified and trusted professionals. At Blue Flame Minerals, we have been working with mineral rights since 2011 and understand the complexities of selling mineral rights and their tax implications. We are happy to discuss your situation and provide you with the best possible service with integrity and respect.