Walk through example, oil gas royalties, MVO, 2015 to current 2019. Tags: depletion, asset depletion, defer, royalties
Here are the facts of my MVO purchase on Dec 8 2015:
1. I bought 52 shares at 5.47. Therefore 284.44 invested.
2. For purposes of this example, I plan to keep these 52 shares for as long as the trust exists. Forever.
3. There were no distributions in 2015, I bought late in the quarter.
4. Here are all the distributions to date from the 1099s:
1st quar 2nd 3rd 4th
2016 13.22 11.58 11.85 12.13
2017 12.43 10.79 11.05 11.31
2018 11.33 10.2 10.45 10.7
2019 10.87 9.7 9.86 10.03
5. The sum of all the distributions above is 177.50.
6. Let's say the trust continues on until 2060, I live till then, at somewhat the same rate of distribution as the 4 years above. Obviously in some years from now the distributions total will exceed what I invested, being 284.44.
(((Optional history to read, on dealing with this:
7. How these trusts should REALLY be handled is difficult for me, possibly even for the pros, for in 2016, based on errors in the images rather identical this year as for that year, an on-phone pro at TT finally concluded for me "these were divs," and "we'll handle them with 0 in the cost basis," and for date acquired "put in same as sale date." My taxes were 0 anyway those 1st 3 years (2015, 16, 17), and his instructions didn't change that, but this year I had some taxes because of other productions. When I faithfully went to follow the instruction of 2016 just described, my Fed tax suddenly went up by a good $100.00. I connected with another TT advisor on-phone, full screen shares, we finally decided on, to "enter sale price as cost basis to effect 0, but "use date actually acquired." I think he made some references to "when you sell," something akin to "depletion," I couldn't really grasp nor imagine the front to end tax treatment of this MVO e.g., and I remained pretty much in a haze. This then set off many days' rounds of reading on oil, gas trusts, but I'm still not clear - there must be a simple precision one can grasp - on how these play out to the end; hence, working with this example, continuing next paragraph.... )))
8. So if you read #7 (oof, I guess I meant you should rather than optional), I'm dealing with the errors in image by entering cost basis as sales price, (to come to zero on that for now), and inputting the actual date acquired, where they're asking for date acquired, for this 2019 tax year I'm preparing to submit now before Apr. 15 2020.
The question and issue for this entire sample boils to:
9. What, if anything, am I going to see, or put especially maybe as, am I going to have to notice and dexterously do something about in that certain tax year it occurs, where the complete history/sum of my distributions becomes greater than my investment of 284.44?
10. Un-smooth things like this - at one point the recent advisor suggested there maybe wasn't a proper import as to this MVO - but I had imported the 1099 from the brokerage twice already, including a complete reinstall of TurboTax and doing my taxes twice from scratch, and the same error appeared - thing like this cause me huge worry and distraction.
PS I'm including MVO-relevant screenshots of my 1099's for 2019 and 2018 in case the highlighted "Principle payment" in 2019 vs the highlighted "Gross proceeds" in 2018 makes for conversation; all years preceding 2018 used "Gross proceeds." 2019 1099 is the first year noticing this phrasing difference. Also wondering why the error snippet "net proceeds" box amounts don't match the distributions I posted above for MVO. They're close, but....
