I purchased my home on 40 acres 26 years ago and was unaware that it included the mineral rights. To my surprise they are included. 26 years later, they are about to drill15 horizontal wells under my property. What is the tax basis if I were to sell the rights as it is not a) inherited, and b) not a purchase of mineral rights outright?
I hope you will consult with an attorney who is well-versed in the area before you even remotely consider selling….
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Nobody’s going to tell you this, but I wouldn’t sell. They’ll never pay you what it’s worth. For 15 wells, you could get as little as $10K-15K per month or more.
You can sell the house, but don’t sell the mineral rights.
Disclaimer: It’s just my opinion.
Consult with an attorney or accountant, but if you bought the property, my understanding is that the tax basis is what you paid for it-land and minerals together. If you sold, then the capital gains would be based upon what you sold it for minus what you paid for it. If you sold both the land and the minerals together. If you sold just the land, then you would need to separate that out. Would advise that you keep the mineral rights if you are about to have 15 horizontal wells drilled.
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This could be life changing. I would not sell the minerals. Ever.
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I’m not sure where you got your information but 15 wells crossing 4O acres doesn’t seem accurate even with today’s trend towards allocation wells, Multiple laterals from one drill site, horseshoe laterals, etc. I would check your source. Curious, what county is this?
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Some counties in TX can have 20+ laterals in a unit. They are stacked like cigars in a box. The 40 acres can be part of a larger pooling unit so one can get paid on every well in the unit according to their allocation.
Yes, this is a pooled acreage of 1,685 and the wells are located in Larimer County, CO, Township 5 North, Range 68 West, 6th PM. Drilling will be in the Codell and Niobrara Formations of the Wattenberg field and just started this week. Drilling is being carried out by Bison IV Operating. I’m still interested in the tax question of what is the tax basis of the mineral rights if they were to be sold independently of the property (where I continue to live) and were obtained with the purchase of the property and house 26 years ago. I’m asking this question for a neighbor that would like to sell the same rights that I own and they plan on staying on the property.
The tax basis would be the value of the minerals at the time they were bought or the date of death of the person that they inherited from. The capital gains would be based upon the difference between that cost basis and the current selling price. There are several engineering firms in CO that can help with the historic value.
Thanks M_Barnes. I thought that might be the case but the value of unexplored minerals was a puzzlement to me. Finding out some 15 years after purchasing the house and property that I owned the mineral rights was a pleasant surprise.
If there was no production back when acquired, then some people use $1/ac or $10/ac depending upon the area. If there is production now, then the sales price will potentially trigger capital gains.