Many people are often confused whether to sell their mineral rights or to lease their mineral rights. But the thing is, there are equal number of advantages as well as disadvantage in making the deals which involve selling and leasing. But in reality it is necessary to evaluate the conditions of the market at the point of time when we are making the deal and it is always wise to come to further conclusions basing on the previous evaluations. However, as the title says, for now let us discuss the disadvantages of leasing mineral rights over selling.
Maintaining records is always a tough task: Instead of selling if one keeps the mineral rights and want to enjoy the royalty he/she will get by leasing the property he/she needs to keep track of all the records. They need to retain the evidence of royalty income every time they get from all of their mineral rights and they need to report their earning by paying taxes regularly. In case if you want to change the place you are staying in you need to inform the company who leases your mineral rights in order to get prompt payments. If the production work in your land is going on, it is well and good but when there is no production it is too tough to maintain relationships with the company.
Burden of taxes: The amount which we are getting paid is 100% taxable and we need to pay the tax with out fail. This shows a drastic impact on your income and the burden will increase with the increase in the production every year. Moreover, the royalties are based on the amount of output produced during particular period. However, at times when the mineral prices are low the company stops drilling and stops the production temporarily which again impacts your income. Further more these fluctuation in your income standards makes it hard to do tax planning and budgeting.
In view of all the above disadvantages, it is better to sell off the mineral rights.