Please clarify if the working gas and oil interest and royalties on your Schedule C business should be on your Sch E as royalty income? In order for it to be on your Schedule C, then you need to be "in the business" of working gas and oil interest".
If you have an economic interest in mineral property, you may be able to take a deduction for depletion.
If you received a 1099-MISC reporting the royalty income, then they may also have given you a supplemental document or a "substitute" 1099-misc showing the gas and oil depletion and the taxes. Generally that is the case. This could be a passive activity where someone else does all the work, but you own the land and get the excess profits after expenses.
If you think you calculated the amount of depletion you entered on your return, here is a link to an additional resource on the calculation of depletion:
IRS Publication 535
There are two ways of figuring depletion on mineral property.
- Cost depletion.
- Percentage depletion.
Generally, you must use the method that gives you the larger deduction. However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells.
Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits).
Basis adjustment for depletion.
You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater, but not below zero.
[Edited 03/11/2021|4:44 pm pst]
