Good afternoon, How do I go about finding the value of an ORRI and the lease value of the acreage in Lea County NM in 2015? Thanks, Lu Ann Y
Is the property producing?
Yes, it was in 2015 and continuing until I sold it this year. I have called many folk in NM - trying to seek how to value the 440 areas with the producing well. I am batting zero. I need to find a value for tax purposes. The last response I received is that is too hard to place a value back then because production costs and offers continue to change.
So, let me ask: If a landman is trying to buy the acreage and the well and let’s say offers 30,000. Obviously, that is a low offer because they want to sell it to make more. So, how much more does a landman want to receive in reselling the ORRI? If they offer 30,000 do they want to double their money? Lu Ann
The tax basis is going to depend on how you acquired the interest. Did you buy a OGL and sell it with a retained ORRI or did you inherit the interest. Either way establishes a cost basis. It seems you are trying to establish a market value rather than a cost basis. If you retained the ORRI and did not recover the full cost of the OGL, then the remaining unrecovered cost is your cost basis. If you inherited, then it would be the estate valuation for that interest. Market value is what a willing buyer and seller can agree to for a sale/purchase. Amounts beyound that are considered speculative valuations. I hope this helps.
for tax purposes, not market value purposes, one way to go about this is 60 months x the average income of what was produced during the three months before and three months afterward of what I assume is when your ancestor passed away. It is not perfect, but it is defensible.
If you purchased the ORRI then your basis is the purchase price LESS all depletion that you have taken on your tax return. If you inherited, then it is the estate valuation LESS all depletion that you have taken. It is not just the estate value. If it was a gift, then it is the basis of the donor LESS all depletion that you have taken. After 9 years of royalties and depletion, there is a good likelihood that your basis is at or close to zero.
I received this from parents in a quit deed. How does this work? L Youngman
I obtained the acreage 440 lease with the operating well through parent quit deeding it to me and my sister. We have both sold it at different times and amounts. How does a quit deed affect the tax amount owed?
LuAnn, you are mixing some terms. A Quit Claim Deed is not the transfer document you would use to transfer the ownership in an Oil and Gas Lease. The document in that case would be an Assignment of Oil and Gas Lease. Did your parents own the minerals or did they own an Oil and Gas Lease? Since you retained an ORRI, it sounds like the interest was in an OGL. The method of transfer does not matter. Did you pay anything to your parents at the time of transfer? Did your parents gift the property to you and to your sister? Was the well making money at the time of transfer? There are several tax events that could have occurred at the point of transfer, so I believe you will need to go to a CPA to establish the type of transfer and the value. No one on this site will reasonably be able to help you establish that value.
If your parents gifted the ORRI, then you will have their basis at time of gift (original acquisition cost or inheritance value LESS all depletion which they took over the years), and divide parents’ in half with your sister. It is most likely that your parents basis was less than the market value of the gift, but you cannot increase your basis to the 2015 value. Then you reduce your gift basis by all the depletion which you have taken from 2015 forward to determine your tax basis at time of sale.
Thank you for taking your time. It is pretty much over my head. I do have a tax account that handles my taxes. Hopefully, with information gathered here, I can offer him some assistance moving forward.
Thank you for taking your time. I truly appreciate the information that you have shared. My mother simply signed over the percentage she had on the lease (we did not own the minerals) to us by the quit claim deed. I hope I can come to some fair amount of what I owe in taxes after the sale of profit. Thanks again!!
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