Informal appraisals for personal use
Many mineral owners regularly receive offers to sell their mineral rights, but how do you know if the highest offer is fair? Although there are rules of thumb you can follow, or a free online mineral rights value calculator, these methods often give you an inaccurate and sometimes low estimate of the value of your mineral rights. If you are planning on selling your mineral rights, you should hire an independent, third party professional to establish the actual price per acre of your mineral rights.
The restricted-use appraisal report intended only for use by the client, and is typically 15-20 pages of details supporting a Professional Engineer’s opinion on the current and future value of the asset. These reports are typically used by owners as a solid foundation to negotiate leasing or selling your minerals. A report typically takes two weeks or less to complete and can be customized to your specific needs. The restricted-use appraisal is called a “restricted appraisal” by the USPAP, and all report of any size provided by Pecan Tree follow the USPAP ethics and competency rules.
Formal appraisals for tax & legal use
The formal appraisal is presented in a longer format that is suited for external use (also following USPAP guidelines). These reports are typically used for tax purposes, estate planning, and other legal matters. Due to the greater reporting requirements and time involved, pricing for formal appraisals is about 30-50% more than a restricted appraisal.
Retrospective appraisals for capital gains tax basis
If you own mineral rights, there is a good chance you inherited them from your family, and usually without any clue what the value of those minerals are for your tax basis. Without a basis the tax assumption is $0 value. If you then sell your mineral rights, you’re taxed capital gains on ALL of the sales price, even if it was ACTUALLY a capital loss! A retrospective appraisal will establish the mineral value as of any historical date. The retrospective appraisal is a formal appraisal that follows USPAP reporting format and takes about a month to complete.
The capital gains tax is based on the increase in value of the mineral rights between the date of inheritance and the date of sale. The federal capital gains tax rate is typically 15% – 20%.
