I am selling a mineral right/oil royalty. How do I know what the correct percentage is to pay in taxes on the total amount I receive?
You must compare what you originally paid for the mineral right with the sale proceeds, minus direct expenses of the sale. The difference is the gain or loss that gets reported. If the mineral rights have been held for more than a year, then the gain is long-term; less than one year is short-term.
In general, you should set aside 20 percent of the gain for federal taxes and 3.07 percent of the gain for Pennsylvania taxes. This gain/loss will be lumped in with any other capital transactions of the taxpayer in the tax year, which may serve to lessen or increase the amount of tax due. But, in general, the 20 percent and 3.07 percent amounts are what I would advise you to set aside.
You should be sure to consult your tax adviser and not handle this transaction yourself. If the mineral right is held in a limited partnership, the partnership will likely provide you with the information to compute the gain/loss.
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Answered by: Susan D. Jarvis, CPA, is a sole practitioner in Nazareth, Pa.