How does selling my mineral rights effect my taxes and are there tax benefits?
When considering selling Oil and Gas Mineral rights it is important to understand how it will impact your taxes. The taxes for money generated through oil and gas production on your property is taxed at a much higher rate than it would be if you were to sell it! But why is this?
All money that is generated through royalties is considered to be ‘income’. This extra income can push you into a higher tax bracket where you are paying 30% – 40% in income tax.
Capital Gains Tax
The money that you receive from selling your oil and gas mineral rights is considered a “capital gain”. The current taxation on Capital Gains is a flat 20%. Capital gains have no impact on income taxes which can be a large benefit
Income Tax vs. Capital Gains Tax
Example:Let’s say that you have been offered $200,000 in royalties. If this was considered income, with no other income the rest of the year, you would be taxed at a rate of 33%. This will leave you with $134,000.
Letâs say that you have been offered $200,000 for your mineral rights. This money would be taxed at the flat capital gains tax rate of 20%. This would leave you with $160,000.
That is a $16,000 difference. What could you do with $16,000?