Should I sell my mineral rights? It is a question many mineral owners face each year. What we have learned over the years by managing our own mineral rights and by talking with mineral owners is that there are many different reasons to sell all or a portion of your oil and gas royalties.
Many have been told by family members to never sell their mineral rights or oil and gas royalty interests. This may be good advice, but it may or may not apply to your current situation.
If you find you have all the cash you need, and your health is great; and that your investment portfolio is well diversified and the mineral rights make up a small percentage of your investments; and that you are not counting on your royalties as a form of future income, then you probably should not sell and simply hold onto your mineral rights.
If that is not the case, don’t despair. Today there is a good, efficient market for mineral rights, and by working with an experienced consultant like us at Western Mineral Consultants, you can rest assured that you will always get top dollar for your minerals rights and oil and gas royalties. What are mineral rights worth? Many are pleasantly surprised when the learn the value of their minerals, but the value of your minerals really depends on a number of factors, click here to learn about our valuation process.
More often than not, mineral owners have found selling their mineral rights is a great way to avoid going to the bank for a loan. Who doesn’t want to be debt free? Selling your mineral rights can help that dream become a reality. Whether it is to pay off your mortgage, fund a child’s education, take that dream vacation, or retire, selling your oil and gas royalties can make your dreams come true.
Others may find themselves is less fortunate circumstances. Selling your mineral rights may be a perfect solution to get those pesky creditors to stop calling, to relieve the burden of managing your own mineral rights, or provide you with the ability to help a loved one pay for a family emergency. We will never judge you or your reasons, but we will help you evaluate your options objectively so you can make the right decision for you.
Other common reasons people sell their mineral rights:
- Tax Savings
Your royalty payments are being taxed in multiple ways:
– Federal Income Tax – taxed as ordinary income up to 39.6%
– State Income Tax (depending on your state) – As much as 10.1% of taxable income.
– State Severance Tax – most states, which can be as high as 12.5%.
– State Property Tax or Ad Valorem Tax – based on the projected value of the oil and gas royalty. Can be as high as 25% of the annual income depending on the commodity prices during the year.
However, should you decide to sell your property and have held it for in excess of a year, the capital gain from the sale would ONLY be subject to the long-term capital gain tax, and the state income tax if the state in which you reside has a state income tax.
Please Note: Always consult with your tax advisor. The information on this website does not constitute tax advice. You should always consult your tax advisor to help answer specific questions regarding how tax laws apply to you.
- Estate Management
Often it is easier to liquidate assets prior to having actually probate an estate. Should you hold properties in several states, the estate will have to be probated in each state, which is a costly endeavor. It is much easier to distribute cash assets to heirs than to divide up real property.
- Liquidating a Depleting Asset for another Investment Opportunity
Oil and Gas interests are depleting assets. Every day wells produce they are one day closer to having the reserves depleted and the well plugged and abandoned. Many people choose to convert these assets to non-depleting assets such as real estate, stocks and certificates of deposit. Since mineral rights and royalty interests are real property, this can also be accomplished on a tax deferred basis by virtue of a 1031 Exchange. For more information on 1031 Exchange, click here.
- Eliminate the Paperwork and Hassles of Managing Your Royalties
The sale of your mineral rights or oil and gas royalties will eliminate the need for future years to account for the income, pay Ad Valorem taxes, maintain depletion schedules, and will greatly simplify your tax return.
As the mineral rights are passed from generation to generation the interests are often divided into such small interests that they just don’t justify the expense and hassle of ownership.