Our client recently sold mineral rights inherited in 1970s. We might have some information on its value through the estate tax valuation made originally at the time of inheritance, which is quite low. I am reading there is something called a 36-48 month rule used in valuing mineral rights, based on the royalty income it has received (I have information on the historical incomes received). Is any one familiar with this rule? Trying to see if this method might give us a higher basis.
The step-up method is only used if that was just recently inherited. If you have a valuation per the estate transfer, you use that. You are lucky to have that; we could not get any valuation, even though we hired a firm to do it, in 2009.
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It's worse than you think! Your client's adjusted basis is almost certainly zero - the original 706 valuation less depletion over the years. Your client has ordinary income to the extent of that original 706 valuation, and capital gain for the excess. A low original basis is what you want to be hoping for.
