Several years ago, I inherited a portion of the mineral rights to an oil well. I did not have to invest any money and I receive a royalty check every month based on the amount of oil that is pumped/purchased. I also do not incur any expenses to receive this check. Although I have read the TT help and an outside article (furnished by the company that sends me the checks), I am still not certain I am entitled to the depletion deduction. Here is the excerpt from that article:
In other words, the depletion allowance is an oil and gas deduction from gross income that is allowed, reflecting the depletion of mineral deposits. The cost depletion deduction applied is based on the fact that investors should be incentivized to engage in high-risk investments such as oil and natural gas production.
In the United States, anyone can claim the oil depletion allowance if they hold an economic interest in a mineral deposit, for example, natural gas reserves. The depletion deductions follow a principle that states the asset represents a capital investment, a wasting asset. As a result, depreciation can be considered an offset – or a capital loss – against asset-generated income.
I have used TT in the preceding years and have never claimed it, but now am not so sure whether or not I should have.
Thank you in advance for any help/insights!
