I am looking for some advice and guidance for my mother. In January 2016, she sold her oil and gas mineral rights that were inherited from her parents in 2004 for $531,000. I understand that this will be taxed as a long term capital gain but I am having trouble figuring out at which percent?======>Correct. LTTCG tax rate ;d be either 0% aslongas her tax bracket is 15 % or lower than 15% and it?d be 15% if her marginal tax rate is higher than 15% but lower than 39.6%; If her rate is 39.6% then her LTCG rate?d be 20% on her LTCG.The profit you make from mineral rights is taxable as regular income, generally at the same rates as what you make at work. This means you won't qualify for special tax treatment on the money you get when your minerals are extracted. However, you technically aren't taxed on your gross income. You're taxed on your profit, which means you can subtract expenses before the taxes are calculated .
When you sell your mineral rights, you are subject to two different types of taxes. If you're able to sell for a profit, your gain will be subject to capital gains tax. However, if you are able to sell for more than your depleted value, which is the property's cost less the total of all of the depletion you claimed, the difference between the depleted value and the selling price, up to the cost, will be subject to a depletion recapture tax. That tax is levied at your standard tax rate. For instance, say, you buy mineral rights for $100k, deplete them to $70k and sell them for $90k, the $20k difference between your depleted value and your sale price would be subject to the recapture tax as ordinary income , NOT LTCG. If you sell for $115k, you'd pay recapture tax on the $30k difference between your $70k depleted basis and your $100k cost and pay capital gains tax on the $15k difference between your $100k cost and your $115k selling price
Her taxable income in 2015 was only her SS in the amount of about $18,000. In 2016, she only had her SS and the sale of the minerals. Also, when the minerals were inherited there was no value or cost basis assigned to the minerals so we don't know who or how to get that value either. Help we are struggling=======>> It depends on her MAGI( 50% of her SS benefits + her LTCG); as said, When you sell mineral rights it is treated as a long-term capital gains sale as long as it has been owned for more than one year. her basis in the minerals is treated as any other inherietd asset. Usually, her basis for inherited assets is the fair market value of the assets on the date of the death of the person she inherited the assets from The value on date of death is her cost. But when rights are inherited, you'll have to make an estimate of what the market value of these rights would have been on the date of death of whomever left the rights to your mother. THIS becomes your basis for capital gain purposes.As you acquired by inheritance, then there isn't any "cost" to you on that date. However, the value of the asset as of that date must be determined because the rules state that your basis is established by the value of that date.You need to secure a "valuation" of the asset as of that date and the IRS has criteria to establish that value. Mineral managers or valuation experts can handle this pretty easily, even going back in time. They prepare a report and thus "document" the basis.