Benefits of Owning Mineral Rights

by Denise Sullivan
Mineral rights ownership lets you make money by selling oil, copper, diamonds and other natural resources.

Real estate ownership typically includes the ground, the minerals beneath the surface, and the airspace directly above the property. Mineral rights grant you ownership of any valuable substances found underground, such as oil, natural gas, gold, diamonds, coal, copper or quartz. A property owner can split up the title and sell ownership to each of these types of rights separately. The value of your mineral rights depends on the size of the property, its location, the type of minerals to be extracted, whether the property has already produced viable products, and the current price of the mineral on the open market.

Income

You can sell your mineral rights outright or lease them to another party on a temporary basis. You can also sell the rights to royalties separately from the underlying mineral rights. A royalty owner can resell his interest at will, but cannot remove any minerals from the land without permission from the mineral rights owner. Instead, the royalty owner will receive periodic payments from the sale of extracted minerals. The payments are based on the amount of minerals sold and the royalty agreement with the owner.

Estate Planning

Mineral rights also give you additional options when planning your estate. If you are a royalty owner, you can pass the rights onto their heirs. This gives you benefit from the income during your lifetime, and you still have a valuable asset to bequeath to your family. Consult an estate planning attorney or tax accountant before setting up royalty agreements. Estate tax may apply on the capitalized value of the future income stream.

Flexibility

You can tailor the mineral rights contract to fit your family's specific needs. Government agencies can purchase rights from homeowners to provide resources for the local community. When designing the contract, you can designate which types of minerals may be extracted, leave a certain area of the property untouched for your future use, or set limits on drilling to avoid disturbing the occupants of the home.

Considerations

Income tax applies to earnings from mineral rights or royalties. These rights are also classified as real estate for property taxes. If you sell your rights at a profit, you must report the gain as a capital gain on your tax return. You can deduct any expenses related to creating the mineral rights income, such as property taxes or travel expenses incurred while meeting with potential buyers. Report your mineral rights earnings on Schedule E of Form 1040.

About the Author

Denise Sullivan has been writing professionally for more than five years after a long career in business. She has been published on Yahoo! Voices and other publications. Her areas of expertise are business, law, gaming, home renovations, gardening, sports and exercise.

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