The Benefit of Divesting

Mineral and royalty interests are interests in real property and are considered capital assets for federal tax purposes. If owned for more than one year, a capital asset will receive long-term capital gains treatment, resulting in significant federal tax savings when the interest is sold. The inherited real property receives automatic long-term capital gains treatment, regardless of when it was inherited or how long it was owned. Capital gains tax rates are at historically low levels. Now is the time to take advantage before capital gains tax rates go up once again. Additional tax advantages exist in regards to 1031 exchanges. Consult with your tax advisor to explore all the advantages of divesting your mineral or royalty interest.