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Old 01-21-2014, 04:32 PM
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Schedule E Royalty Income

I started receiving gas royalty payments in 2013 for a small percentage ownership of mineral rights. I believe I can take a percentage depletion of 15% to lower my income tax liability, is this correct? I also pay production tax and state environmental tax on the royalty income I receive. Are the production and environmental taxes I pay tax deductible?



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Old 01-21-2014, 07:29 PM
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Originally Posted by teague6403 View Post


#1;I started receiving gas royalty payments in 2013 for a small percentage ownership of mineral rights. I believe I can take a percentage depletion of 15% to lower my income tax liability, is this correct?



#2;I also pay production tax and state environmental tax on the royalty income I receive. Are the production and environmental taxes I pay tax deductible?
#1;aslongas you have an economic interest in mineral property (which includes royalty income), you can take a deduction for depletion. You have an economic interest if You have acquired by investment any interest in mineral deposits ;You have a legal right to income from the extraction of the minerals to which you look for a return of your capital investment . Under percentage depletion, the deduction for the recovery of one’s capital investment is a fixed percentage of the gross income (sales revenue) from the sale of the oil or gas. For oil and gas royalty owners, percentage depletion is calculated using a rate of 15% of the gross income based on your average daily production of crude oil or natural gas, up to your depletable oil or natural gas quantity. An attractive element of percentage depletion is that the cumulative depletion deductions may be greater than the capital amount spent by the taxpayer to acquire the property.



#2; Most (but not all) oil and gas producing states levy a severance tax on all oil or gas production. This tax is based on either the volume or value of the production. Royalty and mineral owners pay their pro rata share of these mineral rights taxes. The IRS allows you to claim a tax deduction for taxes on property that produces rent or royalty income on Sch E.; Environmental cleanup costs are generally capital expenditures. However, you can elect to deduct these costs as a current business expense if certain requirements are met. One who receives royalties must report them as income. Royalties can either be reported as passive income to an individual on their form 1040 sch E. When claiming royalties as income the royalties are considered passive income.



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Old 01-23-2014, 11:31 AM
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Royalty Income from Oil and gas production

I receive royalty payments for oil and gas production. Are there any additional deductions that I may take in addition to the depletion of 15%.



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Old 01-23-2014, 11:34 AM
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Originally Posted by teague6403 View Post
I started receiving gas royalty payments in 2013 for a small percentage ownership of mineral rights. I believe I can take a percentage depletion of 15% to lower my income tax liability, is this correct? I also pay production tax and state environmental tax on the royalty income I receive. Are the production and environmental taxes I pay tax deductible?
I also receive oil and gas royalties> Are there any additional deductions that I may take against this income.



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Old 01-23-2014, 11:44 AM
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Originally Posted by jmcgiboney View Post
I receive royalty payments for oil and gas production. Are there any additional deductions that I may take in addition to the depletion of 15%.
basically, Oil and gas royalty taxes come in all shapes and sizes. There are county royalty taxes, state royalty taxes, and federal royalty taxes, all of which add up to significant tax bills for mineral and royalty owners; so, inmany situations, you can deduct gas, oil and other transportation expenses from your income taxes. Always keep supporting documentation such as receipts, travel logs, statements and other documentation to substantiate your claims. Travel logs should contain the date, who is involved (charity, doctor, or business), purpose of the trip, mileage, expenses and pertinent information. You must keep accurate records for each trip, prorating the expenses according to the purpose (medical, charity, or business).


Note; as said, fortunately, there are ways to reduce your mineral rights and royalty taxes. The depletion allowance is one way to accomplish this. Since minerals are a finite source and will eventually play out, the IRS code generally allows royalty owners to deduct up to 15% of the income from their mineral interests.



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