Gifts of Mineral Interests: The Details

Mineral interests exist in many states, and they can be used to create a charitable gift at demo.

What is a mineral interest?

A mineral interest is the ownership of the minerals lying beneath the surface of a property. Minerals subject to ownership include oil, gas, coal, iron ore, and precious metals, but not water, sand, gravel, building stone, limestone, and surface shale. The owner of a mineral interest often does not own the surface land, but the ownership of the sub-surface minerals is an interest in real property.

A mineral owner owns the right to remove the minerals along with the right to execute a lease giving someone else the opportunity to remove them. Often, an individual owner of a mineral interest will lease the interest to a company (the lessee) that will incur the costs of exploration and production, obtain the minerals, and retain profits over and above any rights the owner (lessor) has retained. This right to incur costs and actively to remove the minerals is known as a working interest or operating interest . In return for granting the lease, the lessor receives a land bonus and a royalty from the revenue of minerals and other amounts agreed upon at the time the lease is negotiated. Mineral interests are by their nature depleting assets once they are under production.

The right interests for donation

Gifts of mineral royalty interests and mineral interests are ideal assets for donation. Once in production, those interests will produce income that we can apply to our charitable purposes, or we can sell the interests and apply the cash proceeds to our charitable purposes.

Unfortunately, demo cannot accept gifts of operating or non-operating mineral interests because of the liability and tax consequences associated with those interests. Such interests will generate unrelated business taxable income (UBTI), which will cause us to incur unrelated business income tax and which can jeopardize demo tax-exempt status. In addition, demo is unable to accept the environmental and other liability issues that might come with owning working interests.

Demo has a gift acceptance policy for gifts of mineral interests. We must perform due diligence on the interest by gathering relevant information from you, including property surveys, lease agreements, environmental evaluations, and so forth. In addition, the management and administration of your mineral interests may require knowledge and expertise from outside consultants.

Your tax benefits

If you own mineral interests that we can accept, you can donate them to demo, make an impact, and claim a charitable deduction for the fair market value of the interests as long as you have owned them for more than one year and the interests are of the type for which federal tax law allows a charitable deduction.