Understanding Mineral Rights
Despite being millions in numbers, a great majority of mineral rights owners have little understanding of how their rights work and what they can do to benefit from them. According to Investopedia, mineral rights refer to the rights that the landowner has to earn “a portion of the profits of any minerals that can be drawn out from the property”. It is an umbrella term used to describe the number of ways an owner can profit from the natural resources extracted from the ground. This also means the landowner has the authority to sell mineral rights or just profit from it. Depending on what the landowner’s needs or desires, the extracted minerals can be sold, leased, or developed.
Mineral extraction can be very complicated and costly, which is why many mineral rights owners just permit oil companies or mineral companies to do the extraction, and in return just be paid in royalty income from the company’s revenue. As the United States’ oil and gas industry started to grow, mineral rights have been separated into two individual rights – the mineral rights (royalty rights) and surface right. The separation often causes confusion, and can lead to loss of profit for the landowner. It is therefore advised to talk with mineral brokers in order to understand how these two separate rights can affect your profits.
Furthermore, mineral rights owners should be aware of the taxes that come with owning mineral rights. As with many other assets, mineral rights come with tax liabilities can become burdensome depending on how the minerals are being handled. Aside from the Federal tax obligations, mineral rights can be taxed on a state and/or county level. In order to mitigate the impact of these taxes, there are options such as Depletion Allowance and 1031 Exchanges. Talk with someone who knows about mineral rights and the laws that pertain to it to avoid legal issues in the future.