Table of Contents
- What Are Mineral Rights in Ohio?
- How Do You Know If You Own Mineral Rights?
- How Are Mineral Rights Taxed in Ohio?
- How Are Mineral Royalties Taxed in Ohio?
- Can You Take Deductions on Mineral Rights Taxes?
- How Do You Sell Your Mineral Rights in Ohio?
- Sell Your Mineral Rights In Ohio
Although Ohio’s oil production peaked in the 1890s, the state is still rich in natural resources. The advent of fracking in the Marcellus Shale and Utica Basin has sparked new interest in the area over the past fifteen years, and major oil and gas companies leased up mineral interests at breakneck speed.
If you’ve inherited mineral rights, you might be wondering how these changes could impact your family. It can be tough to let go of your family’s land, but selling your mineral interests now might be the best move. We created this quick guide so you have all the information you need to make that choice.
What Are Mineral Rights in Ohio?
Owning mineral rights means you have the right to develop and produce the mineral interests under your land. Ohio law allows for split-estate arrangements, which severs surface rights from mineral rights. A split estate would mean you hold the surface rights while someone else owns the mineral rights.
Here’s the difference between the two:
- Mineral rights: If you own Ohio mineral rights, you own all your subsurface resources. You can sell your rights, or you can lease them to private companies to grant them the right to develop and produce the minerals.
- Surface rights: Owning Ohio surface rights entitles you to use everything above ground. For example, you could build a home, raise livestock or hunt on your property.
You’ll also want to know that ownership can expire for entities holding the mineral rights to someone else’s land. As part of Ohio’s Dormant Mineral Act, your mineral rights would revert to you if the holder doesn’t produce anything within 20 years.
How Do You Know If You Own Mineral Rights?
Before you can sell your rights, you have to prove you own them. Here’s how:
- Locate lease documents: If you or your family have ever signed a lease, whether it’s expired or not, is an easy way to find information on how many net mineral acres you own. Locate the lease form, order of payment, and any other helpful correspondence between you and the Lessee.
- Research county records: If you’ve never been approached about a lease, but think you own mineral rights you’ll need to search county records. Unlike surface ownership which can be identified on any County GIS website, there is no easy way to understand who owns the minerals under a given piece of land other than chaining title from homestead patent to present. It may be best to hire a land services company to help you do this.
- Review tax records: A search of tax records is an easy way to understand whether or not someone else is being taxed on the minerals underneath your surface – if so, there was likely a mineral severance earlier in the chain of title.
- File curative documents: If there are gaps in the title chain (i.e. a missing probate or conveyance from a deceased family member) or find other ambiguities in your title chain, contact an attorney who can help you draft the necessary curative documents to ensure you have “marketable” title to the mineral rights.
Note that mineral rights are considered real property, just as the surface land is. To be effectuated, all real property transactions must be filed in the county records where the subject land and minerals are situated.
How Are Mineral Rights Taxed in Ohio?
The state of Ohio taxes mineral rights ad valorem, just like any other type of real estate. You’ll need to pay this tax once every year, and the amount you’ll pay comes down to your production, if you are producing at all.
If you sell your mineral rights, you will have to pay long-term capital gains tax on the sale — fortunately, though, you only have to pay this tax once.
How Are Mineral Royalties Taxed in Ohio?
Taxes on mineral royalties are slightly different from mineral rights. Because they are a type of ongoing payment, the state classifies royalties as a type of ordinary income. Individual taxpayers must report all royalties on Tax Form 1040, though it is not subject to self-employment tax.
Mineral royalties are subject to the Net Investment Income Tax, which is 3.8% of all your net investment income. Other assets that factor into net investment income include but are not limited to:
- Interest
- Capital gains
- Dividends
- Rental and royalty income
- Non-qualified annuities
Your royalties may also be subject to local income tax if you live in an incorporated area where it applies.
Additionally, because royalty payments tend to be large, you may need to make quarterly estimated tax payments on them. To determine whether this situation applies to you, it’s best to get help from a tax professional.
Can You Take Deductions on Mineral Rights Taxes?
If you have reportable income from the oil and/or gas sales produced from the minerals on your property, you may be eligible to take a depletion deduction. Because there’s only a finite quantity of subsurface resources, the IRS allows you to take a deduction calculated through one of two methods:
- Percentage depletion: A fixed percentage of your gross income from the property can be deducted from your income taxes. Most landowners use this method to determine their deductions.
- Cost depletion: Your deduction is based on the value of your land and all associated assets, such as minerals, timber and buildings. Few landowners use this method because it’s uncommon to split property into more than two parts.
Having a tax expert walk you through these calculations can help you understand how the deduction works on a more technical level.
How Do You Sell Your Mineral Rights in Ohio?
Selling your Ohio mineral rights and royalties is a straightforward process, though it can take some time for the sale to close. You’ll need to get a thorough valuation of your property first in order to receive the certification for sale.
Make sure to consult with a reliable mineral rights acquisition firm to ensure you get the best price. The firm you partner with should offer free valuations and be willing to negotiate so you can get the best deal possible.
It’s also important to look for a company with experience navigating Ohio mineral rights law. Selling to an out-of-state buyer can be costly if they’re unfamiliar with the legal nuances involved in the process.
Contact Cloud Peak Minerals to Sell Your Ohio Mineral Rights
We know it’s tough to let go of cherished heirlooms. So if you decide selling your Ohio mineral rights is the best choice for your family, we’ll support you every step of the way.
As part of our commitment to our code of Cowboy Ethics, we take pride in what we do — and we always keep our promises. We’re not brokers, flippers or speculators. Our goal is to help you get the best possible deal for your mineral interest without any extra hassle.
Contact us today to request a free valuation of your mineral rights.