Should I Sell My Mineral Rights?
Posted January 27, 2020
The decision to sell your mineral rights is a big one. Before putting your name in ink on the final contract, you want to feel confident you’re making the right choice. Unfortunately, there’s no “one size fits all” way to determine if selling your mineral rights is the best decision. The answer is different for everybody.
To find your answer, you have to gather all the information and evaluate whether or not selling your minerals makes the best sense for your specific situation. While a lot of it comes down to personal choice and where you are in your life, there are a few different factors you may want to consider when weighing your decision.
3 Important Questions to Ask When You’re Thinking About Selling Your Mineral Rights
If you find yourself asking “should I sell my mineral rights?”, here are a few things to take into account:
1. What is the value of your minerals right now?
What’s happening with the market at a given moment can have a big impact on what your minerals are worth. Oil and gas prices go up and down. For example, right now the price of natural gas is down—but it could potentially drop even lower in the coming year. That means, if you’re positioned in the gas window of the Utica Shale formation, the value of your mineral rights is probably not as high as it was a couple years ago.
Depending on your specific situation, if you have the time, you may want to monitor the market and wait until you can get the best value for your mineral rights. Of course, since you never know what the future of the market will hold, this can be a risky approach. Check out this post to learn more about what your minerals are worth.
2. Can selling your mineral rights provide you tax benefits?
From a financial planning perspective, there can be certain tax advantages to selling your mineral rights. For one, any royalties you receive from leasing your mineral rights are taxed as standard income (at the highest tax rate) whereas income from selling your mineral rights is in many cases eligible for the lower long-term capital gains tax rate. That’s more money in your pocket!
Some individuals also choose to sell their mineral rights because it enables them to qualify for a 1031 like-kind exchange. This section of the tax code allows you to use the money made from selling one piece of property (and mineral rights qualify as “property”) to buy another piece of property—while having taxes deferred on the income you received from the sale. This can provide both great investment opportunities and short-term tax savings.
3. Are there good reasons to sell your minerals versus leasing them?
Many landowners ask why should you choose to sell your mineral rights when you could just lease them, retain ownership, and collect royalties off oil or gas production from your property. The answer is it all really depends on the specific needs and situation of the landowner. Both leasing and selling mineral rights offer landowners different advantages.
With leasing, landowners get to keep ownership of their mineral rights and collect royalties over time. With selling, landowners get a lump sum of money for their minerals upfront—so they don’t have to wait the years it takes for royalties to trickle in. Selling also does away with the risks of leasing where if production never starts or a well doesn’t produce, a landowner doesn’t receive any royalties. When you sell, the money all comes upfront, so even if those things should occur, they don’t affect your payout.
What Happens When You Decide to Sell Your Mineral Rights?
Asking the questions above can help you determine if the time is right to sell your minerals. If you decide you want to move forward with selling your mineral rights, you may be wondering what happens next. How does the process work? Here’s a quick summary of the mineral rights buying process at Gateway Royalty. Hopefully, this gives you a better idea of what to expect should you choose to take the next and sell your minerals.
Are you a landowner thinking about selling your mineral rights? Reach out to Gateway Royalty today. We’ll be happy to assess the value of your minerals and answer any questions you might have.