Tax Incentives for Selling Your Mineral Rights

The Texas mineral rights brokers at The Mineral Auction understand how oil and gas royalties can make tax season an expensive time of the year for mineral rights owners. Along with high taxes on royalties, people who lease their mineral rights could potentially pay more in taxes since the leases are looked at as regular income. Fortunately, our experienced brokers have decades of experience in the market and can help you sell your mineral rights at the perfect time to maximize your tax benefits. To learn more about how we can help you, contact us today at (512) 698-2802 to schedule a free consultation.

Like many commodities, the prices of minerals, oil, and gas fluctuate depending on the market. And with prices constantly changing, your mineral rights can be extremely valuable one day and worthless the next. This means you can never accurately predict how much your oil and gas rights will be worth, and therefore you can never predict how much you’ll have to pay in taxes once April rolls around. For many mineral rights owners, the uncertainty and fluctuation in price can be frustrating and difficult to deal with as you prepare to do your taxes. And while mineral rights have the potential to valuable, there are some instances where the amount you are paying in income tax doesn’t make ownership worth it.

People who own mineral rights and are receiving oil or gas royalties income in Texas are subject to federal income tax on the revenues and county ad valorem taxes. These taxes can potentially cost you money and make your tax filing process infinitely harder. In some instances, the amount you pay in taxes could make mineral rights ownership no longer worth it. When this happens, it may be a good idea to sell your rights.

Do I Need a Mineral Rights Broker?

Deciding to sell your mineral rights is only half the battle. You also need to find the right buyer and sell at the right time. Because selling your mineral rights can sometimes qualify as a long-term capital gains tax, a mineral rights broker can advise you every step of the way and make sure you sell before tax rates go up or sell right when they go down. Understanding the tax implications and the complexities of the market can be difficult to handle on your own. An experienced mineral broker with knowledge of the industry and commodities markets can advise you every step of the way and help you make an informed decision. Additionally, mineral brokers have relationships with buyers that can help you make sure that you not only sell at the right time but also to the right buyer, maximizing your profits.

How Taxes on Mineral Rights Work

Mineral rights generate income for Texans in a few different ways. Owners can partially or fully sell mineral rights and receive income from the sale in a lump sum. However, most mineral rights owners make money from leasing their mineral rights to an oil and gas company, giving them permission to drill on their property. If any mineral is found on the land, the mineral-rights owner receives royalty income based on how much is extracted and the mineral’s value at the time of extraction. In some cases, mineral rights owners may also receive bonus payments upon signing the lease.

As with any source income, mineral rights royalties are taxed. These taxes can include the following:

  • Ad Valorem Tax:Taxes that are collected every year at the county level and are typically only paid when minerals are extracted. The amount mineral rights owners pay depends on the fair market value and changes from year to year based on value, not revenue.
  • State and Federal Taxes:Royalty payments are considered revenue and therefore taxed like any other type of income. Texans do not have to pay state income taxes on mineral rights. At the federal level, mineral rights owners are taxed only if more than one-third of their income comes from leases and royalty payments on mineral rights.
  • Severance Tax:States collect severance tax on the extraction of gas and oil to pay for extraction expenses. In Texas, this includes a gas tax (7.5% tax on the market value of gas) and condensate production tax (4.6% tax on the market value of condensate). It also includes a regulatory fee of .000667% per thousand cubic feet of gas produced.

If you are leasing your mineral rights to an oil and gas company, the royalties you receive depend on the amount of oil extracted. These royalties are then taxed at the county, state, and federal levels.

Contact Us Today

The amount you pay in taxes may make the value of your mineral rights assets not worth your time or money, especially when the market slows down, and you aren’t earning much from the royalties. By consulting with a Texas mineral rights dealer, you can eliminate the need to keep track of these royalties, potentially saving you money and energy next tax season. Don’t wait another second to sell your mineral rights. Contact The Mineral Auction today by calling (512) 698-2802 and take control of your financial future.

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