I’m working towards selling my Grady County, OK rights. I inherited them from my mother by affidavit of heirship. She died in 1984 and never got much in royalties. Since then there have been at least three or four different operators. In the last year the present operator has drilled at least two more wells and I’m trying to determine just what I may own. So, seeing I may have to pay capital gains taxes, and maybe other taxes also, can anyone recommend a good, layman’s terms resource explaining all my potential taxes from selling inherited mineral rights? Also, once I get that information, can I reduce the tax preparer’s bill by doing some of the legwork or research on my own?
Not accounting advice here, just experience. You will need to get a basis value for your minerals as of the date of death of your mother. That establishes your starting value. When you sell, you may have to pay capital gains tax on the difference between your sales price and your basis. if you have no basis, then the IRS will use the entire sales price for the capital gains. If you live in a state that has state income tax, you will have to get help on that.
There have been long strings of discussion about this topic on the forum. You may need to get help from an certified appraiser to get the value back in 1984. Several names have been mentioned. Good idea to get a CPA to walk you through the steps on the tax side.
I am a partner in a small company owning mineral rights in Reeves County. We initially made a contract with a landsman for a five year lease. He, in turn sold these rights to an independent oil company who had many operations in Reeves County, Texas.
This company drilled the first exploratory well on our lease vertically. After evaluation, a bridge plug was set and a horizontal extension was drilled resulting in a partnership between the other lease owners in our half section and the lease owners in another section entirely. The entire time that our lease was being operated at that time we got royalty checks for the total number of oil/gas production based on the actual market at Cushing . . . . no more, no less.
This first producing company then ended up selling our lease to another, slightly larger producing company who simply maintained production from our first well.
The second producing company, due to losses in a lawsuit, sold our lease to a much larger corporate entity who drilled the second well on our property which was a horizontal well with much longer extension. This second producing company has a check stub with their royalty payments that are significantly more complicated that the two previous operators. After a while I began to notice significant withholding with our royalty revenues, particularly when the price of oil began to fluctuate significantly. The most significant change was something I never noticed with the other two companies . . . . a “Production Tax”.
Now, our lease agreement clearly states that our company is not subject to any charges on production operations including maintenance of producing equipment, the costs of operating this equipment, or the costs of transmission of any production from our lease via pipelines, trucking, etc.
Has anyone else noticed this kind of difference with their royalty interests?