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Mineral Rights Inheritance & Step-Up In Basis

Updated: Jan 12

Photograph of an orange canyon with text overlay 'Mineral Rights Inheritance & Step-Up In Basis'

What is a Step-Up In Basis for Inherited Mineral Rights?

A Step-Up In Basis refers to the readjustment of the value of an asset to minimize capital gains tax. When mineral rights are inherited, the value basis is not what the previous owner bought the land for- it is the value at the time of the inheritance.  The value of the inherited mineral rights should be reassessed at the time of inheritance to reflect current market value. This new value would be the basis for calculating capital gains.

Inherited Mineral Rights Step-Up In Basis Example

Here is an example. Bill left 5,000 acres of mineral rights to his granddaughter, Mary. Bill had bought those mineral rights in 1960 for $2,000. A 2018 valuation of the oil and gas minerals determined the Suggested Market Value to be $553,745. Mary sold the mineral rights a few months later for $953,745. Mary only had to pay tax on $400,000; the difference between $553,745 and $953,745.

How to get a Step-Up In Basis on Inherited Mineral Rights

It is important that at the time of inheritance the new owner obtains a current valuation their asset. Mineral rights value can change dramatically between distances, so basing value off of nearby sales is not a good practice. Using an offer letter you may have received to purchase the minerals is also not a very good indicator of what the minerals are actually worth. Ideally, mineral owners should obtain an independent technical study/ appraisal of their mineral acreage. If you're interested in leasing or selling your mineral rights, get your free Property Report with lease & sale estimates today! From there, you'll be able to publish a FREE (optional) listing to LandGate's marketplace:


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