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D
dvbutler88
February 2, 2025
Question

How do I take a Depletion Allowance on my Oil & Gas royalties and also deduct the taxes paid on those royalties?

  • February 2, 2025
  • 1 reply
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    1 reply

    M
    Mike9241
    February 2, 2025

    use schedule E property type 6. Depletion has to be computed by you. Usually, you get a packet from the royalty operator sometime in February which gives you all the details.  

     

     

    here are the general rules.

    you get to take the larger of cost depletion or % depletion

    cost  = unrecoverable depletable costs/ estimated recoverable reserves at the beginning of the year X units sold in 2024

    % =15% of gross receipts

    must be an independent producer or royalty owner

    limited to the lesser of net royalty income before this deduction or 65% of taxable income before this deduction

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