I sold mineral rights this summer and my accountant is telling me I need to find a "qualified individual" to appraise the value when I inherited from my mom in 2007. For capital gains purposes. How do I do that?
Mary,
Was the estate probated? If so it should show your basis.
Were these producing or non-producing rights? If non-producing, do you have any records of them being leased during the last 10 years and the amount leased for?
In my experience, "Qualified Individual" has difficult to determine on non-producing rights.
Hopefully someone else will chime in with more info.
Thanks Rick,
Not probated, just gifted really. My Mom is still alive but gave her children all of her Grady County minerals. This section (27) was leased in 2008 but non-producing. Is there a formula they use based on the lease price?
Mary
If you Mom is still alive, isn't this then, just a gift? I believe that you can receive a certain amount of money each year from your parents, tax free. Probably a value is needed to determine how much in excess of that limit you received and then that portion is taxable--anyway that's how I understand it. If she gifted them to you during a time when there were no offers to buy or active leasing, perhaps the value was minimal. It seems to me that the value of the minerals at the time the gift was made to you (2007) is key to determining what portion is taxable.
I was recently told it is usually 1.5 times the 3 year lease value.
I think your accountant is mistaken however. If she gifted them to you, you would be “gifted” her basis as well.
If she bought them in 1950 for $50 an acre, that is the basis you have. If she passed and they were valued at $250 an acre, you basis would have been reset to the $250.
More than likely they were passed generation to generation just like they did to you. Likely when you do the research you will find your true basis is $100 or less an acre.
I just looked up one of ours for our basis in Grady County. It was valued at $100 an acre in a 1991 Estate that passed IRS scrutiny.
Bottom line, likely you are going to have documentation issues and you basis will be $100 or less per acre anyhow. Value it at $0. If it is $100 you will pay $15 more acre in Capital gains with a base @ $0 vs $100. You’ll spend much more time and money trying to establish the true basis and value.
Note! I’m not a tax, oil and gas, or estate professional. But I am going through some of the same/similar issues and from what you have told me, I think your accountant is incorrect.
Thanks guys, I'm still a little confused and don't want to have to pay to much in capital gains as I sold for $3150 an acre and had 11 plus acres. Yikes.
You have lots of options. Maybe a 1031 exchange if that makes sense for you? Long term capital gains is good option. My opinion is a good CPA is worth their weight in gold at certain times. Maybe the buyer of your minerals can put you in touch with who does their taxes? I would bet they will have lots of experience dealing with purchases and sales of minerals.