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Selling Mineral Royalty Rights

Ayla

This year we sold some inherited mineral royalty rights, that we have had about 10 years. No idea what the value was then. Will we need to pay some sort of capital gain on the purchase amount of $16,000? Not sure if the company that bought these will send us a 1099 or not. We have included the small amount of revenue yearly in our tax returns.

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Ayla

It was not purchased, only inherited for a couple of generations. No idea what the original cost basis would be when we inherited it. The royalties came from around 5 different entities over the years. Would you go from the tax statements values from the county in the year we inherited?

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Vidia

It sounds like you have been including interest earned yearly in your returns. Now that this is sold, you can report the sale as long-term capital gains (losses). You will need to know not only the sales proceeds, but dates of both purchasing and selling, and the original cost basis in order to accurately report your capital gain (loss). This will all be reported in a Schedule D and potentially also Form 8949.

If the company sends you a 1099-B, this is ideal. If not, see if the IRS has it in your income transcripts by following this link and looking for your Wage and Income transcript:
https://www.irs.gov/individuals/get-transcript

And otherwise, we typically suggest taxpayers do their best to find an original receipt of how much it was purchased for in order to report the sale accurately.

Ayla

AndyS

Hi Ayla,

In general, the cost basis of property would be the fair market value on the date of death from the individual you have inherited the property from. Using tax value statements from the county would be a reasonable method to look. You may also consider contact an appraiser in the field that should have access to historic rates for your mineral rights and can give you an official report with the cost basis. You can go to this link to see how Inherited Property cost basis should be handled. https://www.irs.gov/publications/p551#en_US_202212_publink1000257009