Value of Mineral Rights

[windmill]

Client sold property in 1998, but retained the mineral rights.

For the capital gain in 1998, they use the cost basis of the land when inherited.

What do I use for the cost basis for the mineral rights in 2012 when he sold them for $3 million.

Opinions please.

I am thinking 2012 legal fees only for the cost basis.

[kcjenkins]

I agree, essentially he had assigned zero basis in the rights, when making the land sale. While that was questionable then, it now is fair that it be used as the basis brought forward.

[schirallicpa]

Rarely does any one take the time to separately value mineral rights or timber when purchasing or transferring property. I think he's out of luck on that side of the transaction.

[Guest Taxed]

Another way to look at it is that in 1998 when CG was calculated the "stepped up" method was used so that included the value of the mineral under the land unless it was specifically excluded from the valuation. Need to dig deeper on how the stepped up value was calculated. If this is a commercial land, was an appraisal done by a qualified appraiser?

Unless the prior valuation exempted the value of the minerals under the land, I think the cost basis of the rights is 0 (other than closing/legal costs).

The devil is in the detail!

[jainen]

>>he's out of luck<<

Not at all. If he had allocated basis to the retained mineral rights, his capital gain would have been that much higher. The rate in 1998 was 20%, 25%, or 28%. Now it's only 15%, and he has all the time value of money as well!