Tax Considerations Upon Disposition of Mineral Interests
Some of the most baffling problems in tax law arise out of dispositions of mineral interests. Yet the governing principles unfoldup to a pointwith disarmingly axiomatic simplicity.
Tax Consequences on Sale
Gain or loss realized on the sale or taxable exchange of a mineral interest is computed and taxed generally in the same way as in the case of any other kind of property. The net proceeds of the sale or exchange in cash or fair market value of property received are measured against the seller's cost or other basis, reduced to eliminate allowable depreciation and depletion. Any excess of proceeds over adjusted basis represents gain; any excess of adjusted basis over proceeds represents loss.
If the taxpayer held the property primarily for sale to customers in the ordinary course of his trade or business, any gain is fully taxable ordinary income and any loss fully deductible ordinary loss. If, instead of being engaged in the business of a dealer in mineral interests, the taxpayer is engaged in the business of extracting and selling minerals and has held the property for use in that business, he may achieve by sale the best of both worlds: any gain taxed like capital gain and any loss treated as ordinary loss.
 Sales of capital assets. If the property is held for more than six months neither for sale to customers by a dealer nor for dev
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