Is an inherited oil and gas lease considered capital gains or inheritance tax

[KKC2121]

My mother passed away over 15 years ago and late last year it was discovered that there was an oil and gas lease in her name.  The lease began in 1960 and was suspended.  I sold my share of the lease to a speculator.  Is this income inheritance or capital gains?

Thanks

[IsabellaG]

It's both. It's the sale of inherited property. Since you inherited your share, your cost basis in the lease is equal to the Fair Market Value of the lease at the time of her death.  Hopefully, you can find some reasonable way to determine what that value would have been. If not, you'd have to use zero.

When you sell the lease, you pay long term capital gains tax on the difference between the sales price and your cost basis. This can be reported in TurboTax under Investment income, in Stocks, Mutual Funds, Bonds, Other. Say that you inherited the property on the date of her death, and continue with the screens.

[KKC2121]

Thank you - at the time of my mother's death and the closing of her estate, we did not know that the lease existed. Due to the new activity the oil fields that the lease is in, it now has some value.  So, am I correct in understanding, that I use a zero dollar amount as fmv and the sales price to determine capital gains even though I held the lease for less than 90 days?

Thank you.

[IsabellaG]

Yes, it would be long term capital gains, not short term. Once you indicate that the lease was inherited, Long Term Capital Gains will be calculated. I guess in your case, you would need to enter a zero basis.

[NCperson]

It is long term because it ‘s measured from the date your mother created the lease, not the date you became aware of it’s existence