Long Term Capital Gain Tax
Assuming you have owned the minerals or royalties interests on your land for over a year, a sale or partial sale will be taxed as a “long term capital gain”, currently at a maximum 15% rate. Monthly revenue distributions checks on the other hand are considered “ordinary income” and can be taxed as high as 35%. (Under the current legislation, ordinary income tax rates are scheduled to increase to as high as 39.6% in 2013).


1031 Exchange 
One way to defer capital gains from the sale of mineral rights, royalty interest or other real estate ownership is through 1031 "like kind" exchanges.  "1031" refers to the IRS section allowing real estate owners (home, ranch, mineral rights, override interest, royalty interest, and more) to defer capital gains taxes on the sale of their property when it is exchanged with another "like kind" property. 


45/180 Day Rule - You must identify your property (or several possible properties) within 45 days of your sale, and you must close your sale within 180 days of your sale or on the date that the tax return is due for the year when the initial property is sold.  For example, if you sell your property in on December 15, 2011, your tax reporting date (when you must file your tax return for 2011) is before the end of the 180 day period.  However, you can always file an extension to solve this issue.  Remember that if you file your taxes before you complete your sale, you will invalidate your exchange.

Royalty IRAs
With a truly self-directed IRA, you can invest in just about anything, including oil and gas. A royalty IRA is a self-directed IRA used primarily for investing in oil and gas royalties. A Royalty IRA allows you to invest in oil and gas while taking advantage of tax-free profits and significant tax deductions to help you build wealth and grow that retirement nest egg.


Please note that while we have a great deal of experience in the Oil & Gas industry, we are not tax professionals or registered investment advisors and recommend that you consult with your CPA or investment advisor or we can direct you toward our trusted CPA and investment advisor firm.