Updated August 7, 2026. Quick answer: inherited property generally takes a new basis equal to its value at the date of death, and royalty income carries a depletion deduction most heirs never claim. 🔴 Together they decide what a sale nets and what the income actually costs you.
The step-up rule
The general rule, quoted:
the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent’s death by such person, be—(1) the fair market value of the property at the date of the decedent’s death, (2) in the case of an election under section 2032, its value at the applicable valuation date prescribed by such section, (3) in the case of an election under section 2032A, its value determined under such section, or (4) to the extent of the applicability of the exclusion described in section 2031(c), the basis in the hands of the decedent.
Four bases, not one. Date-of-death value is item (1) of four, and it governs only where no election was made. Under section 2032 the executor may instead elect to value the estate as of the date 6 months after death — or, for property disposed of within those 6 months, as of the date of that disposition. Ask the estate which of the four applied before you compute a gain on a sale.
⚠️ Honest gap, stated rather than glossed: the statute sets a general rule for “property” and does not name mineral interests. We are not asserting a minerals-specific rule we could not source. What follows practically: a valuation as at the date of death is the document that makes any basis position provable, and getting one is far easier close to the death than years later.
Depletion — the deduction that goes unclaimed
The Code allows a depletion allowance on mines, oil and gas wells and other natural deposits. For oil and gas the rules sit in their own section, and three numbers govern:
| Element | The rule |
|---|---|
| Rate | 15% for independent producers and royalty owners |
| Quantity limit | Applies only up to a tentative quantity — 1,000 barrels per day equivalent |
| Income cap | Limited to 65% of taxable income |
🔴 The practical point for an ordinary royalty owner: you are almost certainly inside the quantity limit, which means the 15% is generally available — and it is claimed on the return, not withheld at source. Nobody sends you a reminder.
What to get on paper
- A date-of-death valuation, obtained as early as practical.
- The royalty statements, kept — they are the depletion computation’s input and the multiple’s denominator if you are ever offered a sale.
- Severance tax already withheld, identified separately from the gross.
Before selling: how buyers price an offer. On the paperwork: the division order.
Sources
Step-up: IRC §1014(a). Depletion: IRC §611(a), §613 and §613A — the 15% rate at §613A(c)(1), the tentative-quantity limit at §613A(c)(3)(B), and the 65%-of-taxable-income limit at §613A(d)(1). All read 7 August 2026. General information, not tax or legal advice. Mineral and property-tax law is state law; confirm anything decision-critical locally.