Never Sell Mineral Rights
Never sell mineral rights? This common advice is WRONG!
When you hear someone say “never sell mineral rights”, you should take it with a grain of salt. Every person has a unique situation. Deciding whether to sell mineral rights is a personal decision.
The phrase never sell mineral rights originated when families wanted to pass mineral rights down through the generations. The idea of never selling mineral rights came from the fact that eventually those mineral rights would be worth a lot of money.
If you are thinking about selling your mineral rights, make sure you consider the information in this article before you make a decision.
We would also highly recommend reading our mineral rights value article. If you take the time to understand why never selling mineral rights is bad advice, and then spend a few minutes to learn about the value of your mineral rights, you are going to be an informed mineral owner who makes the best possible decision about selling mineral rights.
#1 Reason to Sell Mineral Rights – Tax Savings
The #1 reason why you should sell mineral rights is due to tax savings. The common advice to never sell mineral rights is wrong when you look at how much you can save in taxes.
When it comes to selling mineral rights and taxes, it is important to understand how mineral rights are taxed.
Royalty Income: When you collect royalty income, this is taxed as ordinary income. This means you are taxed at the same rate as income earned from a job. Everyone has a unique tax situation, but it is likely you would pay at least 24% in taxes on any royalty income.
Sell Mineral Rights: If you sell the mineral rights, you will pay capital gains tax rates. This means you will likely pay a 15% capital gains tax rate.
Even in the worst case scenario, you will save 10%+ by selling mineral rights as compared to collecting royalty income over time.
Did you inherit the mineral rights? If so, you will likely save substantially more by selling. You only pay capital gains tax on a portion of the sale, meaning you will save a fortune in taxes.
Continue reading below for some examples of tax savings, or check our our mineral rights taxes article.
#2 Reason to Sell Mineral Rights – Diversification
Diversification is the #1 reason why the advice to never sell is very bad advice for the vast majority of mineral owners.
When you own mineral rights, your investment is not diversified. You own the oil and gas underground. When the value of that oil and gas goes up or down, so does your investment.
Wouldn’t you rather own an investment that is not tied to oil and gas prices and instead be diversified among many industries? The opportunity cost of holding mineral rights vs investing in the stock market is simply not worth it for 99% of mineral owners.
When you also consider the fact that you will save money in taxes and be diversified, selling mineral rights makes a lot of sense.
To put it simply, the advice to never sell mineral rights is wrong. Dead wrong!
If you can answer YES to the following question, you might consider holding onto your mineral rights:
Do your mineral rights make up less than 5% of your net worth?
If so, you have a large portfolio of assets for retirement. Holding the mineral rights can make sense if they represent less than 5% of your retirement plan because they give you diversification outside of the stock market, real estate, and other retirement funds.
For most mineral owners it make sense to sell and save substantial money on taxes and get diversification.
There are very few mineral owners who did not inherit the mineral rights (they purchased them with property) AND they also have significant assets / retirement accounts that means the mineral rights make up a very small 1% to 3% of their net worth. In this situation, it make sense to keep the mineral rights as they are a good source of diversification for your retirement planning.
Common Reasons to Sell Mineral Rights
Below are some of the most common reasons to sell mineral rights in Texas.
Remember that each situation is unique. Deciding whether you should sell is personal. Never let anyone put pressure on you to sell mineral rights or to hold mineral rights. Take a look at your situation and make the right decision for you.
Common reasons for selling mineral rights in Texas:
Taxes: The number one reason to sell mineral rights in Texas is to save money on taxes. Check our are mineral rights taxes article for more information.
Diversification: If you have more than 5% of your net worth / retirement savings in mineral rights, you should diversify. It simply doesn’t make sense to hold mineral rights that wildly fluctuate in value. Sell the mineral rights and put them in a diversified ETF in the stock market.
Simplify your Estate: A very common reason to sell mineral rights in Texas is to simply your estate. Mineral rights are complicated. They create a tax burden on your heirs and dividing mineral rights decreases the value. Over time, as generations pass, mineral rights get further and further divided. Eventually they become so small the value goes down. We frequently help multiple family members who sell as a package to get a better price.
Qualify for Medicaid: You can only have $2,000 in assets to qualify for medicaid. It’s very common for mineral rights to be worth more than that and disqualify someone from Medicaid. Selling mineral rights to qualify for medicaid is very common.
Medical Expenses: If you are in a situation where you need funds to pay for medical expenses, it makes sense to sell mineral rights and use those funds today.
Pay off Debt: If you are paying 20%+ interest rates on credit card debt, there is no reason you should continue holding your mineral rights. When you consider the tax savings of selling along with paying down high interest debt, there is no question you should sell the mineral rights and pay down the debt.
Pay for School: School is an investment, and unfortunately it’s expensive. Take a moment to look at how much money you will make after going to school vs how much money you royalties will generate. Paying for school, or paying down school debt, is an excellent reason to sell mineral rights.
Starting a Business: When you start a business, it takes capital. Selling mineral rights to fund a business start up can make a lot more sense than taking on high interest debt.
Helping a Family Member: There are always situations that come up where a family member needs help. If selling mineral rights will give you the ability to help a family member in need, it can make sense to sell.
There are many other reasons to sell mineral rights in Texas. We recommend taking some time to figure out what your mineral rights are worth and then deciding whether selling makes sense for your situation.
Questions about mineral rights?
Whether you have questions about whether selling makes sense for you, what the value could be, or anything else related to selling mineral rights, we can help.
Our team is standing by to help answer your questions. When you get a free consultation with our company there is no obligation and no pressure. We’ll simply help answer your questions and guide you in the right direction.
To get a free consultation, simply fill out the form below and we’ll be in touch shortly.