Is the sale of my gas and oil minerals taxable as capital gains, like timber is?

Is the sale of my minerals gas/oil royalties taxable as capital gains?  I am not talking about leasing, but the sale of those minerals.  I already know that the sale of timber is taxed as capital gains, and the money from royalties on a gas/oil well lease is taxed as rental or ordinary income.

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0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on March 4, 2013 at 9:27pm

Tad,  I would have to consult the tax book I use for interpreting the IRS and looking for loopholes or go to IRS.gov and read on the topic. Since I'm working on my taxes this week I'll take a look. I'm sure the folks on this website will have the answer for you, so I'll look back in a few days when I find an answer.   Ron

 

Permalink Reply by craig on March 4, 2013 at 11:42pm

Royalties are treated essentially as ordinary income, not capital gains. So whatever tax bracket you end up in, including your royalties, will determine the tax rate.

I'm not an accountant, but I believe this is 100% right.

Permalink Reply by Dane Ridenour on March 4, 2013 at 11:50pm

selling your minerals is taxed as capitol gains.

Permalink Reply by JR on March 5, 2013 at 12:14am
Yes
Permalink Reply by Donald on March 5, 2013 at 11:43am

Royalties are taxed as a depleation rate 19% , same as coal. not the sail of royalites, but royalities recieved from a lease. check it out.

Permalink Reply by craig on March 5, 2013 at 4:51pm

Let's make this simple. Look at line 17 on US form 1040. Royalties are ordinary income taxed at whatever income tax bracket you fall into. That is where my royalties are put into the mix and so will yours. The same line is used for the bonus money you received for signing your lease.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on March 5, 2013 at 8:57pm

Selling minerals is different from receiving royalties.  It's taxed as a capital gain.

Permalink Reply by Sam Moore on March 5, 2013 at 4:52pm

This is America so unless you are GE everything is taxable.

Permalink Reply by Kathleen on March 5, 2013 at 4:57pm
The IRS 800 number is answered usually by real nice people. Give them a call.
I was told that selling minerals is the same as selling a house. It's a capital gain and the taxes are based on your tax bracket.
The question would be how much of it is based on the ordinal purchase price of the land. If it doesn't exceed the cost of the original purchase do you need to pay?
If you sell the house you do not have a gain until you exceed more than you paid for it.
IMO you already paid for these minerals when you bought the land but how is this figured?
Permalink Reply by brat on March 5, 2013 at 5:30pm

Good answer Kathleen, thus an even better question.

Permalink Reply by Olive Sue on March 5, 2013 at 7:18pm

The defining issue here is leaseing or selling.  If you leased and received bonus money it is taxed as ordinary income.  If you sold (by deed transaction) that changes it. 

Permalink Reply by craig on March 5, 2013 at 10:25pm

Yep, I read the original post too quickly and assumed it was about receiving royalties not selling the right to receive them.

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