Does the 15% depletion deduction available to oil and gas royalty owners impact your basis? I have used this deduction for three years and now can sell my rights but I want to know how to calculate the gain on sale. It is not clear if I need to reduce my basis to below 0 (I had no basis) to recapture the deletion as ordinary income.
You'll need to sign in or create an account to connect with an expert.
Taking depletion does not change your basis.
You cannot reduce your basis in the mineral property below zero. Because percentage depletion is based on income, it is not subject to recapture, even if it exceeds your tax basis in the mineral property.
That is what I thought but I could not find the answer in IRS information. Is there anything you can point me to for back up on this?
What a hunt.
6.2 last sentence
My reading of your cite is discussing recapture as a result of selling an asset?
I'm not sure we have the facts to answer your question:
6.2 Last sentence
Percentage depletion claimed under the exemption for independent producer and royalty owners that exceeds the tax basis in a property sold is not subject to recapture.
Yeah I read that, I am just not clear on exactly what "basis" the OP is referring to?
Gain you the sale of your royalty interest is going to be the difference between what you paid for the interest and the sales price. If you inherited the interest as many do, then you basis is the FMV of the interest when you inherited it.
Valuing your inherited mineral rights can be challenging, if not known at the time of inheritance. Professional mineral appraisers can help with historical values and maybe worthwhile depending on the size of your interest.
@oreodog
Still have questions?
Make a postAsk questions and learn more about your taxes and finances.
rbranch17
New Member
sandrawa
Level 2
bmoyer
Level 2
bmoyer
Level 2
Rowgirl
New Member
Did the information on this page answer your question?
You have clicked a link to a site outside of the TurboTax Community. By clicking "Continue", you will leave the Community and be taken to that site instead.